As filed with the Securities and Exchange Commission on June 12, 1998
Registration No. 333-_______
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
Farnsworth Bancorp, Inc.
----------------------------------------------
(Name of Small Business Issuer in Its Charter)
New Jersey 6035 (Requested)
- --------------------------------- ----------------- -------------------
(State or Other Jurisdiction (Primary SIC No.) (I.R.S. Employer
of Incorporation or Organization) Identification No.)
789 Farnsworth Avenue, Bordentown, New Jersey 08505
(609) 298-0723
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(Address and Telephone Number of Principal Executive Offices and
Principal Place of Business)
Mr. Gary N. Pelehaty
President and Chief Executive Officer
Farnsworth Bancorp, Inc.
789 Farnsworth Avenue, Bordentown, New Jersey 08505
(609) 298-0723
---------------------------------------------------------
(Name, Address and Telephone Number of Agent for Service)
Please send copies of all communications to:
John J. Spidi, Esq.
Jean A. Milner, Esq.
MALIZIA, SPIDI, SLOANE & FISCH, P.C.
1301 K Street, N.W., Suite 700 East, Washington, D.C. 20005
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this registration statement becomes effective.
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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Title of Each Proposed Maximum Proposed
Class of Securities Amount to Offering Price Maximum Aggregate Amount of
To Be Registered be Registered Per Unit Offering Price(1) Registration Fee
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<S> <C> <C> <C> <C>
Common Stock,
$.10 Par Value 548,838 $10.00 $5,488,380 $1,619.07
Interest of participants in the
Profit Sharing Plan 10,645(3) $10.00 $ 106,457 $ --(2)
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</TABLE>
(1) Estimated solely for purposes of calculating the registration fee.
(2) Includes 10,645 shares that may be acquired by the Peoples Savings
Bank Employees' Savings and Profit Sharing Plan ("Profit Sharing Plan")
of the registrant, based upon the assumption that the assets of the
Profit Sharing Plan are used to purchase such shares. The 10,645 of
participations to be registered are based on the assets of the Profit
Sharing Plan. Pursuant to Rule 475(h)(2) under the Securities Act of
1933, no additional fee is required with respect to the interests of
participants of the Profit Sharing Plan.
(3) These shares are included in the 548,838 shares being registered.
<PAGE>
PROSPECTUS
Up to 548,838 Shares of Common Stock
(Anticipated Maximum, as adjusted)
FARNSWORTH BANCORP, INC.
[LOGO] (Proposed Holding Company for Peoples Savings Bank)
789 Farnsworth Avenue
Bordentown, New Jersey 08505
================================================================================
Peoples Savings Bank is converting from the mutual to the stock form of
organization. As part of the conversion, Peoples Savings Bank will become a
wholly owned subsidiary of Farnsworth Bancorp, Inc. Farnsworth Bancorp, Inc. was
formed in May 1998 and, upon consummation of the conversion, will own all of the
shares of Peoples Savings Bank. The common stock of Farnsworth Bancorp, Inc. is
being offered for sale to the public in accordance with a plan of conversion.
The plan of conversion must be approved by the Office of Thrift Supervision and
by a majority of the votes eligible to be cast by members of Peoples Savings
Bank. No common stock will be sold if Peoples Savings Bank does not receive
these approvals or if Farnsworth Bancorp, Inc. does not receive orders for at
least the minimum number of shares.
================================================================================
TERMS OF OFFERING
An independent appraiser has estimated the market value of the
converted Peoples Savings Bank to be between $3,527,500 and $4,772,500 which
establishes the number of shares to be offered. Subject to Office of Thrift
Supervision approval, up to 548,838 shares, an additional 15% above the maximum
number of shares, may be offered. Based on these estimates, we are making the
following offering of shares of common stock:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
o Price Per Share: $10.00
o Number of Shares
Minimum/Maximum/Maximum, as adjusted: 352,750 to 477,250 to 548,838
o Underwriting Commissions and Other Expenses
Minimum/Maximum/Maximum, as adjusted: $330,000 $330,000 $330,000
o Net Proceeds to Farnsworth Bancorp, Inc.
Minimum/Maximum/Maximum, as adjusted: $3,197,500 to $4,442,500 to $5,158,380
o Net Proceeds per Share
Minimum/Maximum/Maximum, as adjusted: $9.07 to $9.31 to $9.40
</TABLE>
Please refer to "Risk Factors" beginning on page 9 of this document.
These securities are not deposits or accounts and are not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other governmental agency.
Neither the Securities and Exchange Commission, the Office of Thrift
Supervision, nor any state securities regulator has approved or disapproved
these securities or determined if this prospectus is accurate or complete. Any
representation to the contrary is a criminal offense.
For information on how to subscribe, call the Stock Information Center
at (609) _____-_____
---------------------------------
Ryan, Beck & Co.
The Date of this Prospectus is August ____, 1998
<PAGE>
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[MAP GOES HERE]
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<PAGE>
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TABLE OF CONTENTS
Page
----
Questions and Answers About the Stock Offering...............................1
Summary......................................................................3
Selected Financial and Other Data............................................6
Risk Factors.................................................................9
Proposed Purchases by Directors and Officers................................12
Use of Proceeds.............................................................12
Dividends...................................................................13
Market for the Common Stock.................................................14
Capitalization..............................................................15
Pro Forma Data..............................................................16
Historical and Pro Forma Capital Compliance.................................22
The Conversion..............................................................23
Statements of Income........................................................35
Management's Discussion and Analysis .......................................36
Business of Farnsworth Bancorp, Inc.........................................46
Business of Peoples Savings Bank............................................46
Regulation..................................................................61
Taxation....................................................................67
Management of Farnsworth Bancorp, Inc.......................................68
Management of Peoples Savings Bank..........................................68
Restrictions on Acquisition of Farnsworth Bancorp, Inc......................74
Description of Capital Stock................................................77
Legal and Tax Matters.......................................................79
Experts.....................................................................79
Registration Requirements...................................................79
Where You Can Find Additional Information...................................79
Index to Financial Statements...............................................81
This document contains forward-looking statements which involve risks
and uncertainties. Farnsworth Bancorp, Inc.'s actual results may differ
significantly from the results discussed in the forward-looking statements.
Factors that might cause such a difference include, but are not limited to,
those discussed in "Risk Factors" beginning on page 9 of this document.
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<PAGE>
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QUESTIONS AND ANSWERS ABOUT THE STOCK OFFERING
Q: What is the purpose of the offering?
A: The purpose of the offering is to raise capital and change our
corporate form of organization. The offering gives you the chance to
become a stockholder of our newly formed holding company, Farnsworth
Bancorp, Inc. Stockholders will share indirectly in our future as a
federal stock savings bank. The stock offering will increase our
capital and funds for lending and investment activities and for
expanding our operations. As a stock savings institution operating
through a holding company structure, we will have greater flexibility
for investments.
Q: How do I purchase the stock?
A: You must complete and return the stock order form to us (no copies will
be accepted) together with your full payment, on or before 12:00 noon,
Eastern time, __________, __________, 1998. If we do not receive
sufficient orders by that time, the offering may be extended until
________ ____, 1998.
Q: How much stock may I purchase?
A: The minimum purchase is 25 shares or $250. The maximum purchase for any
person or persons ordering through a single account, or for any person,
associate or group of persons acting in concert is 6,000 shares or
$60,000 of stock sold in the conversion. We may decrease or increase
the maximum purchase limitation without notifying you. In the event
that the offering is oversubscribed, there will not be enough shares to
fill all orders.
Q: What happens if there are not enough shares to fill all orders?
A: You might not receive any or all of the shares you want to purchase.
If there is an oversubscription in the subscription offering, the stock
will be allocated in the following priorities:
o Priority 1 - Persons who had a deposit account of at least
$50.00 with us on December 31, 1996.
o Priority 2 - Tax Qualified Employee Plans (the employee stock
ownership plan of Peoples Savings Bank).
o Priority 3 - Persons who had a deposit account of at least
$50.00 with us on June 30, 1998.
o Priority 4 - Other persons entitled to vote on the approval of
the plan of conversion.
If the above persons do not subscribe for all of the shares, the remaining
shares may be offered, with the help of Ryan, Beck & Co., in a community
offering or a syndicated community offering. In the event of a community
offering, we will give a preference to natural persons who reside in Burlington
County, New Jersey. In a syndicated community offering, we would offer any
remaining shares to the general public through a selling group of selected
brokers/dealers organized by Ryan, Beck & Co. We have the right to reject any
stock order in the community or syndicated community offerings.
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1
<PAGE>
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Q: What particular factors should I consider when deciding whether to buy
the stock?
A: Since the common stock is expected to be listed on the OTC-Bulletin
Board, an active and liquid market for the stock may not develop and,
even if developed, may not be maintained. This may make it difficult
for you to resell the shares you purchase. Also, before you decide to
purchase stock, you should read this prospectus, including the "Risk
Factors" section on pages ____-____.
Q: As a depositor or borrower member of Peoples Savings Bank, what will
happen if I do not purchase any stock?
A: You presently have voting rights since we are in the mutual form;
however, once we convert, voting rights will be held only by the
stockholders. You are not required to purchase stock. Your deposit
accounts, certificate accounts and any loans you may have with us will
not be affected by the conversion.
Q: Who can help answer any other questions I may have about the stock
offering?
A: If you have any questions you should contact:
Stock Information Center
Farnsworth Bancorp, Inc.
789 Farnsworth Avenue
Bordentown, New Jersey 08505
(609) ______-______
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2
<PAGE>
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SUMMARY
This summary highlights selected information from this document and may
not contain all the information that is important to you. To understand the
stock offering fully, you should read this entire document carefully, including
the financial statements and the notes to the financial statements of Peoples
Savings Bank. References in this document to "we", "us", and "our" refer to
Peoples Savings Bank either in its present form or as a stock savings bank
following the conversion. In certain instances where appropriate, "we", "us", or
"our" refers collectively to Farnsworth Bancorp, Inc. and Peoples Savings Bank.
References in this document to the "Company" refer to Farnsworth Bancorp, Inc.
The Companies
Farnsworth Bancorp, Inc.
789 Farnsworth Avenue
Bordentown, New Jersey 08505
(609) 298-0723
Farnsworth Bancorp, Inc. is not an operating company and has not
engaged in any significant business to date. It was formed in May 1998 as a New
Jersey-chartered corporation to be the holding company for Peoples Savings Bank.
The holding company structure will provide greater flexibility in terms of
operations, expansion and diversification. See page __________.
Peoples Savings Bank
789 Farnsworth Avenue
Bordentown, New Jersey 08505
(609) 298-0723
Peoples Savings Bank was originally chartered in 1880 as The Bordentown
Building and Loan Association. In 1965 we merged with Peoples Building and Loan
Association and became Bordentown Peoples Savings and Loan Association. We
acquired Florence Township Savings and Loan Association and Beverly Building and
Loan Association in 1985 and 1989, respectively. The Beverly branch was
subsequently closed in 1994. In 1995, we changed our name to Peoples Savings
Bank, SLA. In 1996 we converted from a state-chartered mutual savings bank to a
federally-chartered mutual savings bank, and concurrently changed our name to
Peoples Savings Bank.
We are a community and customer-oriented federal mutual savings bank
with two branch offices located in Burlington County. We provide financial
services to individuals, families and small businesses. Historically, we have
emphasized residential mortgage lending, primarily originating one- to
four-family mortgage loans. At March 31, 1998, we had total assets of $38.7
million, deposits of $36.1 million, and retained earnings of $ 2.3 million. See
pages ________ to ________.
The Stock Offering
We are offering between 352,750 and 477,250 shares of common stock at
$10.00 per share. We may increase the offering to 548,838 shares without further
notice to you. We would do this for two reasons: changes in our financial
condition or market conditions that occur before we complete the conversion; or
to fill the order from our employee stock ownership plan. Any increase over
548,838 shares would require the approval of the Office of Thrift Supervision
(the "OTS"). If we do increase the size of the offering within these limits, you
may not change or cancel any stock order previously delivered to us.
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3
<PAGE>
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Stock Purchases
The shares of common stock will be offered on the basis of priorities.
If you are a depositor or borrower member, you will receive subscription rights
to purchase the shares. The shares will be offered first to persons with
subscription rights in a subscription offering, and any remaining shares may be
offered in a community offering and/or a syndicated community offering. See
pages ________ to __________.
Subscription Rights
You may not sell or assign your subscription rights. Any transfer of
subscription rights is illegal and will result in a loss of subscription rights
and possibly other sanctions.
The Offering Range and Determination of the Price Per Share
The offering range is based on an independent appraisal of the
estimated market value of the common stock by FinPro, Inc., an appraisal firm
experienced in appraisals of savings institutions. FinPro, Inc. has estimated
that in its opinion as of June 12, 1998, the estimated valuation range of the
common stock was between $3,527,500 and $4,772,500 (with a midpoint of
$4,150,000). The estimated valuation range of the shares is our estimated market
value after giving effect to the sale of shares in this offering.
The appraisal was based both upon our financial condition and
operations and upon the effect of the additional capital we will raise in this
offering. The $10.00 price per share was determined by our board of directors.
It is the price most commonly used in stock offerings involving conversions of
mutual savings institutions. The independent appraisal will be updated before we
complete the conversion. If the estimated market value of the common stock is
either below $3,527,500 or above $5,488,380, you will be notified and will have
the opportunity to modify or cancel your order. See pages ________ to
__________.
Termination of the Offering
The subscription offering will terminate at 12:00 noon, Eastern Time,
on ________ ____, 1998. Any community offering or syndicated community offering
may terminate at any time without notice, but no later than ________ ____, 1998,
without approval by the OTS.
Benefits to Management from the Offering
Our employees will participate in the offering through individual
purchases and through purchases of stock by our employee stock ownership plan,
which is a type of retirement plan. We also intend to implement a restricted
stock plan and a stock option plan, which may benefit the President and other
officers and directors. If we adopt the restricted stock plan, our officers and
directors will be awarded stock at no cost to them. The restricted stock plan
and stock option plan may not be adopted until after the conversion and are
subject to stockholder approval and compliance with OTS regulations.
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4
<PAGE>
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Use of the Proceeds Raised from the Sale of Common Stock
Approximately 75% of the net proceeds the Company receives from the
sale of its common stock will be contributed to the Bank as payment for our
stock. Part of the Company's remaining funds will be loaned to the bank employee
stock ownership plan to fund its purchase of 8% of the shares sold in the
conversion. Remaining proceeds will initially be placed in short-term
investments. These funds may later be used for stock repurchases or for the
payment of dividends.
The funds the Bank receives from the sale of our stock to the Company
will increase our capital for future lending and investment. In the near future,
we also plan to expand our operations by establishing a new branch office. A
portion of the funds we receive may be used for the purchase of up to 4% of the
shares offered in the conversion for the restricted stock plan which is expected
to be adopted following the conversion. See page __________.
Dividends
Farnsworth Bancorp, Inc. does not initially expect to pay dividends.
We may, however, at a later time establish a dividend policy. See page _______.
Market for the Common Stock
It is expected that our common stock will be quoted on the OTC-Bulletin
Board. An active and liquid trading market, however, may not develop or be
maintained. Investors should have a long-term investment intent. Persons
purchasing shares may not be able to sell their shares when they desire or sell
them at a price equal to or above $10.00. Ryan, Beck & Co. is expected to make a
market in the common stock. Ryan, Beck & Co. will, however, not be subject to
any obligation with respect to such efforts. See page __________.
Important Risks in Owning Farnsworth Bancorp, Inc.'s Common Stock
Before you decide to purchase stock in the offering, you should read
the "Risk Factors" section on pages ____ -____ of this document.
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5
<PAGE>
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SELECTED FINANCIAL AND OTHER DATA
We are providing the following summary financial information. This
information is derived from our 1997 and 1996 audited financial statements, as
well as our unaudited period at and for the six months ended March 31, 1998 and
1997, as shown. The unaudited financial information at March 31, 1998, and for
the six months ended March 31, 1998 and 1997, reflects all adjustments
(consisting only of normal recurring adjustments) which are considered necessary
to present fairly the financial information for such periods. The following
information is only a summary and you should read it in conjunction with our
financial statements and notes thereto beginning on page F-1. The operating data
for the six month periods ended March 31, 1998 is not necessarily indicative of
the results to be expected for the full year.
Selected Financial Data
<TABLE>
<CAPTION>
At March 31, At September 30,
------------ ------------------------------
1998 1997 1996
------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C>
Total amount of:
Assets........................................................ $38,685 $37,619 $34,362
Loans receivable, net......................................... 28,280 26,409 23,261
Mortgage-backed securities.................................... 2,540 3,016 2,781
Investment securities, net.................................... 2,886 3,852 5,467
Cash and cash equivalents..................................... 2,925 2,365 483
Deposits...................................................... 36,088 35,197 29,570
FHLB advances................................................. -- -- 2,435
Retained earnings (substantially restricted).................. 2,225 2,088 1,879
Number of:
Deposit accounts.............................................. 6,548 5,923 5,530
Full service offices.......................................... 2 2 2
</TABLE>
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6
<PAGE>
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Summary of Operations
<TABLE>
<CAPTION>
For the For the
Six Months Ended Year Ended
March 31, September 30,
--------------- ------------------
1998 1997 1997 1996
------ ------ ------- --------
(In thousands)
<S> <C> <C> <C> <C>
Interest income.................................................. $1,333 $1,263 $2,635 $2,369
Interest expense................................................. 677 688 1,409 1,222
----- ----- ----- -----
Net interest income.............................................. 656 575 1,226 1,147
Provision for loan losses........................................ 59 4 8 13
------ ----- ----- -----
Net interest income after provisions for loan losses............. 597 571 1,218 1,134
Noninterest income............................................... 133 79 161 111
Noninterest expense(1)........................................... 578 566 1,106 1,287
----- ----- ----- -----
Income (loss) before income taxes................................ 152 84 273 (42)
Income tax expense (benefit)..................................... 38 22 81 (22)
----- ----- ----- ----
Net income (loss)................................................ $ 114 $ 62 $ 192 $ (20)
===== ===== ===== ====
</TABLE>
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(1) Includes a non-recurring expense of $192,000, or $121,000 net of taxes,
for the year ended September 30, 1996 for a one-time deposit premium to
recapitalize the SAIF. Excluding this non-recurring expense, net income
would have been $101,000.
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7
<PAGE>
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Key Operating Ratios
<TABLE>
<CAPTION>
At or For the Six Months At or For the Year Ended
Ended March 31, September 30,
------------------------- -------------------------
1998(1) 1997(1) 1997 1996
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Performance Ratios:
Return on average assets (net income
(loss) divided by average total assets) 0.60% 0.34% 0.51% (0.05)%
Return on average equity (net income
(loss) divided by average equity) .... 10.44 6.43 9.98 (1.02)
Average equity to average assets ........ 5.78 5.29 5.29 5.80
Equity to assets ........................ 5.75 5.09 5.55 5.47
Interest rate spread .................... 3.34 3.25 3.28 3.52
Net interest margin ..................... 3.68 3.39 3.50 3.62
Average interest-earning assets to
average interest-bearing liabilities .. 108.90 103.08 105.63 102.81
Net interest income after provision for
loan losses, to total noninterest
expenses .............................. 103.29 100.88 110.12 88.11
Asset Quality Ratios:
Nonperforming loans to total assets ..... 0.69 -- 0.53 0.03
Nonperforming assets to total assets .... 0.69 0.33 0.53 0.89
Nonperforming loans to total loans ...... 0.94 -- 0.75 0.04
Allowance for loan losses to total loans 0.44 0.25 0.25 0.25
Allowance for loan losses to
nonperforming loans ................... 46.99 N/A(2) 33.16 644.44
</TABLE>
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(1) Ratios are annualized where appropriate.
(2) At March 31, 1997 there were no nonperforming loans. The allowance for loan
losses was $62,000.
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8
<PAGE>
RISK FACTORS
In addition to the other information in this document, you should
consider carefully the following risk factors in evaluating an investment in our
common stock.
Potential Impact of Changes in Interest Rates and the Current Interest Rate
Environment
Our ability to make a profit largely depends on our net interest
income. Net interest income is the difference between what we earn on our
interest-earning assets (such as mortgage loans and investment securities) and
what we pay on our interest-bearing liabilities (such as deposits and
borrowings). Most of our mortgage loans have fixed rates of interest and are
generally originated with terms of up to 30 years, while our deposit accounts
have significantly shorter terms to maturity. As a result, our interest-earning
assets have longer effective maturities than our interest-bearing liabilities,
which results in the yield on our interest-earning assets generally adjusting
more slowly to changes in interest rates than the cost of our interest-bearing
liabilities. Our net interest income, therefore, will be adversely affected by
material and prolonged increases in interest rates. In addition, rising interest
rates may result in a lack of customer demand for loans, which would adversely
affect our earnings. See "Management's Discussion and Analysis --
Asset/Liability Management."
Changes in interest rates can also affect the average life of loans and
mortgage-backed securities. Historically a reduction in interest rates has
resulted in increased prepayments of loans and mortgage-backed securities, as
borrowers refinanced their mortgages in order to reduce their borrowing cost.
Under these circumstances, we are subject to reinvestment risk to the extent
that we are not able to reinvest such prepayments at rates which are comparable
to the rates on the prepaid loans or securities.
Changes in interest rates also can affect the value of our investment
and mortgage-backed securities and our ability to realize gains from the sale of
those assets which are classified as available- for-sale. Generally, the value
of fixed-rate instruments fluctuates inversely with changes in interest rates.
Increases in interest rates usually result in decreases in the carrying value of
interest-earning assets which are classified as available-for-sale, which would
adversely affect our results of operations if sold, or stockholders' equity if
retained by the Company as a result of Statement of Financial Accounting
Standards No. 115.
Decreased Return on Average Equity and Increased Expenses Immediately After
Conversion
As a result of the conversion, our equity will increase substantially.
We anticipate that it will take time to prudently deploy the capital raised from
the offering. Our expenses will increase because of the costs associated with
our employee stock ownership plan, restricted stock plan, and the costs of being
a public company. We do not know if we will receive sufficient other income to
offset these additional costs. Because of the increases in our equity and
expenses, our return on equity may decrease as compared to our performance in
previous years. A lower return on equity could limit the trading price potential
of the common stock. Moreover, we initially intend to invest the net proceeds in
short-term investments which generally have lower yields than residential
mortgage loans. For 1997 our return on retained earnings was 9.98%. See "Use of
Proceeds."
9
<PAGE>
Lack of Active Market for Common Stock
Due to the small size of the offering, it is unlikely that an active
trading market will develop or be maintained. If an active market does not
develop, you may not be able to sell your shares promptly or at a price equal to
or above the price you paid for them. It is anticipated that the Company's
common stock will be traded in the over-the-counter ("OTC") market with
quotations available through the OTC- Bulletin Board. See "Market for the Common
Stock."
Anti-Takeover Provisions and Statutory Provisions That Could Discourage Hostile
Acquisitions of Control
Provisions in the Company's certificate of incorporation and bylaws,
the general corporation code of New Jersey, and certain federal regulations may
make it difficult for someone to pursue a tender offer, change in control or
takeover attempt which is opposed by our management and board of directors.
These provisions include: restrictions on the acquisition of the Company's
equity securities and limitations on voting rights; the classification of the
terms of the members of the board of directors; certain provisions relating to
meetings of stockholders; denial of cumulative voting to stockholders in the
election of directors; the ability to issue preferred stock and additional
shares of common stock without shareholder approval; and super majority
provisions for the approval of certain business combinations. As a result,
stockholders who might desire to participate in such a transaction may not have
an opportunity to do so. Such provisions will also render the removal of the
current board of directors or management of the Company more difficult. In
addition, the effect of these provisions could be to limit the trading price
potential of our stock. See "Restrictions on Acquisition of Farnsworth Bancorp,
Inc."
Possible Voting Control by Directors and Officers
Our officers and directors intend to purchase approximately 9.8% of the
common stock offered in the conversion based on the sale of 415,000 shares at
the midpoint of the estimated valuation range. These purchases together with the
purchase of shares by our employee stock ownership plan, as well as the
potential acquisition of common stock through the stock option plan and
restricted stock plan, could make it difficult for a stockholder to obtain
majority support for stockholder proposals which are opposed by our management
and board of directors. In addition, the voting of those shares could block the
approval of transactions (i.e., business combinations and amendments to our
articles of incorporation and bylaws) requiring the approval of 80% of the
stockholders under the Company's articles of incorporation. See "Proposed
Purchases by Directors and Officers," "Management of Peoples Savings Bank --
Executive Compensation," "Description of Capital Stock," and "Restrictions on
Acquisition of Farnsworth Bancorp, Inc."
Possible Dilutive Effect of Restricted Stock Plan and Stock Options
Upon completion of the conversion, shareholders will be asked to
approve the restricted stock plan and stock option plan. If approved, we will
issue stock and options to purchase stock to our officers and directors through
these plans. If the shares for the restricted stock plan and stock options are
issued from our authorized but unissued stock, your voting interests may be
diluted by up to approximately 12.3%. See "Pro Forma Data," "Management of
Peoples Savings Bank -- Proposed Future Stock Benefit Plans," and "-- Restricted
Stock Plan."
10
<PAGE>
Financial Institution Regulation and Future of the Thrift Industry
We are subject to extensive regulation, supervision, and examination by
the OTS and the Federal Deposit Insurance Corporation (the "FDIC"). Bills have
been introduced in Congress that could curtail the powers of unitary thrift
holding companies. Other legislation has been considered that would consolidate
the OTS with the Office of the Comptroller of the Currency ("OCC") and require
us to adopt a commercial bank charter. If we become a commercial bank, our
investment authority and the ability of the Company to engage in diversified
activities may be limited, which could adversely affect our value and
profitability. See "Regulation."
Restrictions on Repurchase of Shares
Generally, during the first year following the conversion, the Company
may not repurchase its shares. During each of the second and third years
following the conversion, the Company may repurchase up to 5% of its outstanding
shares. During those periods, even if we believe that additional repurchases
would be a prudent use of funds, we would not be able to do so without first
obtaining OTS approval. There is no assurance that OTS approval would be given.
See "The Conversion -- Restrictions on Repurchase of Shares."
Possible Year 2000 Computer Problems
A great deal of information has been disseminated about the widespread
computer problems that may arise in the year 2000. Computer programs that can
only distinguish the final two digits of the year entered (a common programming
practice in earlier years) are expected to read entries for the year 2000 as the
year 1900 and compute payment, interest or delinquency based on the wrong date
or are expected to be unable to compute payment, interest or delinquency. Rapid
and accurate data processing is essential to the operation of the Bank. Data
processing is also essential to most other financial institutions and many other
companies.
All our material data processing that could be affected by this problem
is provided by a third party service bureau. The service bureau used by the Bank
has advised us that as of April 30, 1998, their system is Year 2000 compliant.
Additional testing of the system is scheduled for August 1998. The service
bureau has advised us that they will keep us apprised of the results of the
testing. We are also in the process of upgrading our teller equipment to be Year
2000 compliant and we expect this upgrade to be completed by the fourth quarter
of 1998. We do not believe that the costs of Year 2000 compliance will have a
material adverse effect on our financial condition or results of operations. If
by the end of 1998 it appears that our primary data processing service bureau
will be unable to resolve this problem in a timely manner, then we will seek a
secondary data processing service provider to complete the task. If we are
unable to do this, we will identify those steps necessary to minimize the
negative impact the computer problems could have on us. If we are unable to
resolve this potential problem in time, we will likely experience significant
data processing delays, mistakes or failures. These delays, mistakes or failures
could have a significant adverse impact on our financial condition and results
of operations. See "Management's Discussion and Analysis -- Year 2000 Issues."
11
<PAGE>
PROPOSED PURCHASES BY DIRECTORS AND OFFICERS
The following table sets forth the approximate purchases of common
stock by each director and executive officer and their associates in the
conversion. Shares purchased by officers and directors in the conversion may not
be sold for at least one year. The table assumes that 415,000 shares (the
midpoint of the estimated valuation range) of the common stock will be sold at
$10.00 per share and that sufficient shares will be available to satisfy
subscriptions in all categories.
<TABLE>
<CAPTION>
Aggregate
Total Price of Percent
Shares Shares of Shares
Name Position Purchased(1) Purchased(1) Sold(1)
- --------------------------------- -------------------- ------------------ --------------- ---------
<S> <C> <C> <C> <C>
George G. Aaronson, Jr. Director 6,000 $60,000 1.45%
Charles E. Adams Director 6,000 60,000 1.45
Herman Gutstein Chairman 6,000 60,000 1.45
G. Edward Koenig, Jr. Director 6,000 60,000 1.45
Edgar N. Peppler Director 6,000 60,000 1.45
William H. Wainwright, Jr. Director 6,000 60,000 1.45
Gary N. Pelehaty President, CEO and 4,000 40,000 0.96
Director
Charles Alessi Vice President, CFO, 800 8,000 0.19
Secretary and
Treasurer
</TABLE>
- --------------------
(1) Does not include shares purchased by the employee stock ownership plan (the
"ESOP").
USE OF PROCEEDS
The Company will contribute approximately 75% of the net proceeds from
the offering to the Bank as payment for our stock. A portion of the net proceeds
to be retained by the Company will be loaned to our employee stock ownership
plan to fund its purchase of 8% of the shares sold in the conversion. See "Pro
Forma Data." The balance of the net proceeds retained by the Company will
initially be placed in short-term investments. These remaining proceeds may also
serve as a source of funds for the payment of dividends to stockholders or for
the repurchase of the shares. See "Business of Farnsworth Bancorp, Inc."
The funds contributed to the Bank by the Company will be used for
general corporate purposes including: (i) originating and purchasing loans, (ii)
investment in U.S. government and federal agency securities, or (iii) investment
in mortgage-backed securities. Initially, we intend to invest the net proceeds
in short- and medium-term investments such as mortgage-backed securities, until
we can deploy the proceeds into higher yielding assets such as loans. The funds
added to our capital will also strengthen our capital position. We may also use
some of our net proceeds to fund the purchase of 4% of the shares for a
restricted stock plan (the "RSP") which is anticipated to be adopted following
the conversion. See "Pro Forma Data." In the near future, we plan to expand our
operations by establishing a new branch office.
The net proceeds may vary because the total expenses of the conversion
may be more or less than those estimated. We expect our estimated expenses to be
approximately $330,000 even if the maximum of the estimated valuation range is
increased to up to $5,488,380. Our estimated net proceeds will range from
$3,198,000 to $4,443,000 (or up to $5,158,000 in the event the maximum of the
estimated valuation range is increased to $5,488,380). See "Pro Forma Data." The
net proceeds will also vary if expenses
12
<PAGE>
are different or if the number of shares to be issued in the conversion is
adjusted to reflect a change in our estimated valuation range. Payments for
shares made through withdrawals from existing deposit accounts with us will not
result in the receipt of new funds for investment by us but will result in a
reduction of our liabilities and interest expense as funds are transferred from
interest-bearing certificates or accounts.
DIVIDENDS
Upon conversion, the Company's board of directors will have the
authority to declare dividends on the shares, subject to statutory and
regulatory requirements. The Company, however, does not expect initially to pay
cash dividends. Any declaration of dividends by the board of directors will
depend upon a number of factors, including: (i) the amount of the net proceeds
retained by the Company in the conversion, (ii) investment opportunities
available, (iii) capital requirements, (iv) regulatory limitations, (v) results
of operations and financial condition, (vi) tax considerations, and (vii)
general economic conditions. Upon review of such considerations, the board may
authorize future dividends if it deems such payment appropriate and in
compliance with applicable law and regulation. For a period of one year
following the completion of the conversion, we do not intend to pay any
extraordinary dividends that would be treated for tax purposes as a return of
capital or take any actions to pursue or propose such dividends. In addition,
there can be no assurance that regular or special dividends will be paid, or, if
paid, will continue to be paid. See "Historical and Pro Forma Capital
Compliance", "The Conversion -- Effects of Conversion to Stock Form on
Depositors and Borrowers of Peoples Savings Bank -- Liquidation Account" and
"Regulation -- Dividend and Other Capital Distribution Limitations."
The Company is not subject to OTS regulatory restrictions on the
payment of dividends to its stockholders although the source of such dividends
will be dependent in part upon the receipt of dividends from the Bank. The
Company is subject, however, to the requirements of New Jersey law, which
generally requires that dividends not be paid if it would cause the Company to
be unable to pay its debts as they become due in the usual course of business or
if, after paying the dividend, the Company's total assets would be less than its
total liabilities.
In addition to the foregoing, the portion of our earnings which has
been appropriated for bad debt reserves and deducted for federal income tax
purposes cannot be used by us to pay cash dividends to the Company without the
payment of federal income taxes by us at the then current income tax rate on the
amount deemed distributed, which would include the amount of any federal income
taxes attributable to the distribution. See "Taxation -- Federal Taxation" and
Note 11 to our financial statements. We do not contemplate any distribution that
would result in a recapture of the bad debt reserve or otherwise create federal
tax liabilities.
13
<PAGE>
MARKET FOR THE COMMON STOCK
As a newly organized corporation, the Company has never issued capital
stock, and consequently there is no established market for the common stock. It
is expected that the Company's common stock will be traded in the
over-the-counter ("OTC") market with quotations available through the
OTC-Bulletin Board. Ryan, Beck & Co. is expected to make a market in the common
stock. Making a market may include the solicitation of potential buyers and
sellers in order to match buy and sell orders. Ryan, Beck & Co., however, will
not be subject to any obligation with respect to such efforts. If the common
stock cannot be traded on the OTC-Bulletin Board, it is expected that the
transactions in the common stock will be reported in the pink sheets of the
National Quotation Bureau, Inc.
The development of an active trading market depends on the existence of
willing buyers and sellers. Due to the small size of the offering, an active
trading market in our common stock may not develop or be maintained. You could
have difficulty disposing of your shares and so you should not view the shares
as a short-term investment. You may not be able to sell your shares at a price
equal to or above the price you paid for the shares.
14
<PAGE>
CAPITALIZATION
The following table presents, as of March 31, 1998, our historical
capitalization and the consolidated capitalization of the Company after giving
effect to the conversion and the other assumptions set forth below and under
"Pro Forma Data," based upon the sale of shares at the minimum, midpoint,
maximum, and 15% above the maximum of the estimated valuation range (the "EVR")
at a price of $10.00 per share.
<TABLE>
<CAPTION>
Pro Forma Consolidated Capitalization
Based on the Sale of (2)(3)
-------------------------------------------------------------
Historical
Capitalization
at March 31, 352,750 415,000 477,250 548,838
1998 Shares Shares Shares Shares
---------------- ------------ ------------- -------------- ------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Deposits(1) .................................. $36,088 $36,088 $36,088 $36,088 $36,088
Stockholders' equity:
Preferred stock, $.10 per share, 1,000,000
shares authorized; none to be issued....... $ -- $ -- $ -- $ -- $ --
Common stock, $.10 par value, 5,000,000
shares authorized; total shares to be
issued as reflected........................ -- 35 42 48 55
Additional paid-in capital.................... -- 3,163 3,778 4,395 5,103
Retained earnings, substantially restricted... 2,143 2,143 2,143 2,143 2,143
Net unrealized gains on available-for-sale
securities................................... 82 82 82 82 82
------ ------- ------- ------ ------
Total equity(4)............................... 2,225 5,423 6,045 6,668 7,383
Less:
Common stock acquired by ESOP............... -- 282 332 382 439
Common stock acquired by RSP................ -- 141 166 191 220
---- --- --- ----- ----
Total stockholders' equity.................... $2,225 $5,000 $5,547 $6,095 $6,724
===== ===== ===== ===== =====
Total stockholders' equity
as a % of total assets...................... 5.75% 12.06% 13.20% 14.32% 15.57%
===== ===== ===== ===== =====
</TABLE>
- ---------------------
(1) Excludes accrued interest payable on deposits. Withdrawals from savings
accounts for the purchase of stock have not been reflected in these
adjustments. Any withdrawals will reduce pro forma capitalization by the
amount of such withdrawals.
(2) Does not reflect the increase in the number of shares of common stock after
the conversion in the event of implementation of the Option Plan or RSP.
See "Management of Peoples Savings Bank - Proposed Future Stock Benefit
Plans -- Stock Option Plan" and "-- Restricted Stock Plan."
(3) Assumes that 8% and 4% of the shares issued in the conversion will be
purchased by the ESOP and RSP, respectively. No shares will be purchased by
the RSP in the conversion. It is assumed on a pro forma basis that the RSP
will be adopted by the board of directors, approved by stockholders of the
Company, and approved by the OTS. It is assumed that the RSP will purchase
common stock at $10.00 per share in the open market within one year of the
conversion in order to give an indication of its effect on capitalization.
The pro forma presentation does not show the impact of: (a) results of
operations after the conversion, (b) changing market prices of shares of
common stock after the conversion, or (c) a smaller than 4% purchase by the
RSP. Assumes that the funds used to acquire the ESOP shares will be
borrowed from the Company for a ten year term at the prime rate as
published in The Wall Street Journal. For an estimate of the impact of the
ESOP on earnings, see "Pro Forma Data." The Bank intends to make
contributions to the ESOP sufficient to service and ultimately retire its
debt. The amount to be acquired by the ESOP and RSP is reflected as a
reduction from stockholders' equity. The issuance of authorized but
unissued shares for the RSP in an amount equal to 4% of the outstanding
shares of common stock will have the effect of diluting existing
stockholders' interests by 4.32%. There can be no assurance that
stockholder approval of the RSP will be obtained. See "Management of
Peoples Savings Bank -- Proposed Future Stock Benefit Plans - - Restricted
Stock Plan."
(4) Includes retained earnings and unrealized gains and losses on
available-for-sale securities, net of taxes. The equity of the Bank will be
substantially restricted after the conversion. See "Dividends," "Regulation
-- Dividends and Other Capital Distribution Limitations," "The Conversion
-- Effects of Conversion to Stock Form on Depositors and Borrowers of
Peoples Savings Bank -- Liquidation Account" and Note 14 to the Financial
Statements.
15
<PAGE>
PRO FORMA DATA
The actual net proceeds from the sale of the common stock cannot be
determined until the conversion is completed. However, investable net proceeds
are currently estimated to be between $3.2 million and $5.2 million at the
minimum and maximum, as adjusted, of the estimated valuation range (the "EVR"),
based upon the following assumptions: (i) 8% of the shares will be sold to the
ESOP and 38,800 shares will be sold to executive officers and their associates;
(ii) Ryan, Beck & Co. will receive a fee of $125,000, which will include
out-of-pocket expenses (including legal fees and out-of-pocket expenses of such
counsel) incurred by Ryan, Beck & Co.; (iii) no shares will be sold in a
syndicated community offering and (iv) other conversion expenses, excluding the
fees and expenses paid to Ryan, Beck & Co., will be $205,000. In addition,
because management of the Bank presently intends to adopt the RSP within the
first year following the conversion, a purchase by the RSP in the conversion has
been included with the pro forma data to give an indication of the effect of a
4% purchase by the RSP at a $10.00 per share purchase price in the market, even
though the RSP does not currently exist and is prohibited by OTS regulation from
purchasing shares in the conversion. The pro forma presentation does not show
the effect of: (a) results of operations after the conversion, (b) changing
market prices of the shares after the conversion, (c) less than a 4% purchase by
the RSP, or (d) dilutive effects of newly issued shares under the restricted
stock plan and the stock option plan (see footnotes 2 and 4).
The following table sets forth our historical net earnings and equity
prior to the conversion and the pro forma consolidated net earnings and
stockholders' equity of the Company following the conversion. Unaudited pro
forma consolidated net earnings and equity have been calculated for the six
months ended March 31, 1998 and the fiscal year ended September 30, 1997 as if
the common stock to be issued in the conversion had been sold at October 1, 1997
and October 1, 1996, respectively, and the estimated net proceeds had been
invested at 5.41%, which was approximately equal to the one-year U.S. Treasury
bill rate at March 31, 1998. The one-year U.S. Treasury bill rate, rather than
an arithmetic average of the average yield on interest-earning assets and
average rate paid on deposits, has been used to estimate income on net proceeds
because it is believed that the one-year U.S. Treasury bill rate is a more
accurate estimate of the rate that would be obtained on an investment of net
proceeds from the offering. In calculating pro forma income, an effective state
and federal income tax rate of 37% has been assumed, resulting in an after tax
yield of 3.41% for the six months ended March 31, 1998 and the fiscal year ended
September 30, 1997. Withdrawals from deposit accounts for the purchase of shares
are not reflected in the pro forma adjustments. The computations are based upon
the assumptions that 352,750 shares (minimum of EVR), 415,000 shares (midpoint
of EVR), 477,250 shares (maximum of EVR) or 548,838 shares (maximum, as
adjusted, of the EVR) are sold at a price of $10.00 per share. As discussed
under "Use of Proceeds," a portion of the net proceeds that the Company receives
will be loaned to the ESOP to fund its anticipated purchase of 8% of shares
issued in the conversion. It is assumed that the yield on the net proceeds of
the conversion retained by the Company will be the same as the yield on the net
proceeds of the conversion transferred to us. Historical and pro forma per share
amounts have been calculated by dividing historical and pro forma amounts by the
indicated number of shares. Per share amounts have been computed as if the
shares had been outstanding at the beginning of the periods or at the dates
shown, but without any adjustment of per share historical or pro forma
stockholders' equity to reflect the earnings on the estimated net proceeds.
16
<PAGE>
The stockholders' equity information is not intended to represent the
fair market value of the shares, or the current value of our assets or
liabilities, or the amounts, if any, that would be available for distribution to
stockholders in the event of liquidation. For additional information regarding
the liquidation account, see "The Conversion -- Certain Effects of the
Conversion to Stock Form on Depositors and Borrowers of Peoples Savings Bank --
Liquidation Account" and Note 19 to the Financial Statements. The pro forma
income derived from the assumptions set forth above should not be considered
indicative of the actual results of our operations for any period. Such pro
forma data may be materially affected by a change in the price per share or
number of shares to be issued in the conversion and by other factors. For
information regarding investment of the proceeds see "Use of Proceeds" and "The
Conversion -- Stock Pricing" and "-- Change in Number of Shares to be Issued in
the Conversion."
17
<PAGE>
<TABLE>
<CAPTION>
At or For the Six Months Ended March 31, 1998
------------------------------------------------
352,750 415,000 477,250 548,838
Shares at Shares at Shares at Shares at
$10.00 $10.00 $10.00 $10.00
Per Share Per Share Per Share Per Share
--------- --------- --------- ---------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Gross proceeds .................................. $ 3,528 $ 4,150 $ 4,773 $ 5,488
Less estimated offering expenses ................ 330 330 330 330
------- ------- ------- -------
Estimated net proceeds ........................ 3,198 3,820 4,443 5,158
Less: ESOP funded by the Company ............. 282 332 382 439
RSP funded by the Company .............. 141 166 191 220
------- ------- ------- -------
Estimated investable net proceeds: ............ $ 2,775 $ 3,322 $ 3,870 $ 4,499
======= ======= ======= =======
Net income:
Historical net income ......................... $ 114 $ 114 $ 114 $ 114
Pro forma earnings on investable net proceeds . 47 57 66 77
Pro forma ESOP adjustment(1) .................. (9) (10) (12) (14)
Pro forma RSPs adjustment(2) .................. (9) (10) (12) (14)
------- ------- ------- -------
Total .................................. $ 143 $ 151 $ 156 $ 163
======= ======= ======= =======
Net income per share:(4)
Historical net income per share ............... $ 0.35 $ 0.30 $ 0.26 $ 0.22
Pro forma earnings on net proceeds ............ 0.14 0.15 0.15 0.15
Pro forma ESOP adjustment(1) .................. (0.03) (0.03) (0.03) (0.03)
Pro forma RSP adjustment(2) ................... (0.03) (0.03) (0.03) (0.03)
------- ------- ------- -------
Total(3) ............................... $ 0.43 $ 0.39 $ 0.35 $ 0.31
======= ======= ======= =======
Ratio of offering price to pro forma earnings per
share(3) ........................................ 11.6x 12.8x 14.3x 16.1x
======= ======= ======= =======
Stockholders' equity:(4)
Historical .................................... $ 2,225 $ 2,225 $ 2,225 $ 2,225
Estimated net proceeds ........................ 3,198 3,820 4,443 5,158
Less: Common stock acquired by ESOP(1) ....... (282) (332) (382) (439)
Common stock acquired by RSP(2) ........ (141) (166) (191) (220)
------- ------- ------- -------
Total .................................. $ 5,000 $ 5,547 $ 6,095 $ 6,724
======= ======= ======= =======
Stockholders' equity (book value) per share:(4)
Historical .................................... $ 6.31 $ 5.36 $ 4.66 $ 4.05
Estimated net proceeds ........................ 9.07 9.20 9.31 9.40
Less: Common stock acquired by ESOP(1) ....... (0.80) (0.80) (0.80) (0.80)
Common stock acquired by RSP(2) ........ (0.40) (0.40) (0.40) (0.40)
------- ------- ------- -------
Total .................................. $ 14.18 $ 13.36 $ 12.77 $ 12.25
======= ======= ======= =======
Offering price as percentage of pro forma
stockholders' equity per share(5) ............... 70.5% 74.9% 78.3% 81.6%
======= ======= ======= =======
</TABLE>
(Footnotes on following page)
18
<PAGE>
<TABLE>
<CAPTION>
At or For the Year Ended September 30, 1997
------------------------------------------------
352,750 415,000 477,250 548,838
Shares at Shares at Shares at Shares at
$10.00 $10.00 $10.00 $10.00
Per Share Per Share Per Share Per Share
--------- --------- --------- ---------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Gross proceeds .................................. $ 3,528 $ 4,150 $ 4,773 $ 5,488
Less estimated offering expenses ................ 330 330 330 330
------- ------- ------- -------
Estimated net proceeds ........................ 3,198 3,820 4,443 5,158
Less: ESOP funded by the Company ............. 282 332 382 439
RSP funded by the Company .............. 141 166 191 220
------- ------- ------- -------
Estimated investable net proceeds: ............ $ 2,775 $ 3,322 $ 3,870 $ 4,499
======= ======= ======= =======
Net income:
Historical net income ......................... $ 192 $ 192 $ 192 $ 192
Pro forma earnings on investable net proceeds . 95 113 132 153
Pro forma ESOP adjustment(1) .................. (18) (21) (24) (28)
Pro forma RSPs adjustment(2) .................. (18) (21) (24) (28)
------- ------- ------- -------
Total .................................. $ 251 $ 263 $ 276 $ 289
======= ======= ======= =======
Net income per share:(4)
Historical net income per share ............... $ 0.59 $ 0.50 $ 0.43 $ 0.38
Pro forma earnings on net proceeds ............ 0.29 0.29 0.30 0.30
Pro forma ESOP adjustment(1) .................. (0.05) (0.05) (0.05) (0.06)
Pro forma RSP adjustment(2) ................... (0.05) (0.05) (0.05) (0.06)
------- ------- ------- -------
Total(3) ............................... $ 0.78 $ 0.69 $ 0.63 $ 0.56
======= ======= ======= =======
Ratio of offering price to pro forma earnings per
share(3) ........................................ 12.8x 14.5x 15.9x 17.9x
======= ======= ======= =======
Stockholders' equity:(4)
Historical .................................... $ 2,088 $ 2,088 $ 2,088 $ 2,088
Estimated net proceeds ........................ 3,198 3,820 4,443 5,158
Less: Common stock acquired by ESOP(1) ....... (282) (332) (382) (439)
Common stock acquired by RSP(2) ........ (141) (166) (191) (220)
------- ------- ------- -------
Total .................................. $ 4,863 $ 5,410 $ 5,958 $ 6,587
======= ======= ======= =======
Stockholders' equity (book value) per share:(4)
Historical .................................... $ 5.92 $ 5.03 $ 4.38 $ 3.80
Estimated net proceeds ........................ 9.07 9.20 9.31 9.40
Less: Common stock acquired by ESOP(1) ....... (0.80) (0.80) (0.80) (0.80)
Common stock acquired by RSP(2) ........ (0.40) (0.40) (0.40) (0.40)
------- ------- ------- -------
Total .................................. $ 13.79 $ 13.03 $ 12.49 $ 12.00
======= ======= ======= =======
Offering price as percentage of pro forma
stockholders' equity per share(5) ............... 72.5% 76.8% 80.1% 83.3%
======= ======= ======= =======
</TABLE>
(Footnotes on following page)
19
<PAGE>
- -------------------
(1) Assumes 8% of the shares sold in the conversion are purchased by the ESOP,
and that the funds used to purchase such shares are borrowed from the
Company. The approximate amount expected to be borrowed by the ESOP is not
reflected as a liability but is reflected as a reduction of capital. We
intend to make annual contributions to the ESOP over a ten year period in
an amount at least equal to the principal and interest requirement of the
debt. The pro forma net income assumes: (i) that 2,822, 3,320, 3,818 and
4,391 weighted average shares at the minimum, mid-point, maximum and
maximum, as adjusted of the EVR, were committed to be released during the
year ended September 30, 1997 and 1,411, 1,660, 1,909 and 2,195 weighted
average shares at the minimum, midpoint, maximum and maximum as adjusted
were committed to be released during the six months ended March 31, 1998,
at an average fair value of $10.00 per share in accordance with Statement
of Position (SOP) 93-6 of the American Institute of Certified Public
Accountants ("AICPA"); (ii) the effective tax rate was 37% for such period;
and (iii) only the ESOP shares committed to be released were considered
outstanding for purposes of the per share net earnings. The pro forma
stockholders' equity per share calculation assumes all ESOP shares were
outstanding, regardless of whether such shares would have been released.
Because the Company will be providing the ESOP loan, only principal
payments on the ESOP loan are reflected as employee compensation and
benefits expense. As a result, to the extent the value of the shares
appreciates over time, compensation expense related to the ESOP will
increase. For purposes of the preceding tables, it was assumed that a
ratable portion of the ESOP shares purchased in the conversion were
committed to be released during the periods ended March 31, 1998 and
September 30, 1997. See Note 3 below. If it is assumed that all of the ESOP
shares were included in the calculation of earnings per share for the
period ended at March 31, 1998, earnings per share would have been $.41,
$.36, $.33, and $.30, respectively, based on the sale of shares at the
minimum, midpoint, maximum and the maximum, as adjusted, of the EVR. If it
is assumed that all of the ESOP shares were included in the calculation of
earnings per share for the period ended at September 30, 1997, earnings per
share would have been $.71, $.63, $.58, and $.53, respectively, based on
the sale of shares at the minimum, midpoint, maximum and the maximum, as
adjusted, of the EVR. See "Management of Peoples Savings Bank -- Other
Benefits -- Employee Stock Ownership Plan."
(2) Assumes the purchase by the RSP of 14,110, 16,600, 19,090 and 21,954 shares
at the minimum, mid-point, maximum, and maximum, as adjusted of the EVR.
The assumption in the pro forma calculation is that (i) shares were
purchased by the Company following the conversion, (ii) the purchase price
for the shares purchased by the RSP was equal to the purchase price of
$10.00 per share and (iii) 10% and 20% of the amount contributed was an
amortized expense during the periods ended March 31, 1998 and September 30,
1997, respectively. Such amount does not reflect possible increases or
decreases in the value of such stock relative to the Purchase Price. As we
accrue compensation expense to reflect the five year vesting period of such
shares pursuant to the RSP, the charge against capital will be reduced
accordingly. Implementation of the RSP within one year of conversion would
be subject to regulatory review and stockholder approval at a meeting of
our stockholders to be held no earlier than six months after the
conversion. If the shares to be purchased by the RSP are assumed at October
1, 1997 to be newly issued shares purchased from the Company by the RSP at
the Purchase Price, at the minimum, midpoint, maximum and maximum, as
adjusted, of the EVR, pro forma stockholders' equity per share would have
been $13.63, $12.85, $12.28 and $11.78, respectively, and pro forma
earnings per share would have been $.43, $.38, $.35 and $.32 for the six
months ended March 31, 1998. If the shares to be purchased by the RSP are
assumed at October 1, 1996 to be newly issued shares purchased from the
Company by the RSP at the Purchase Price, at the minimum, midpoint, maximum
and maximum, as adjusted, of the EVR, pro forma stockholders' equity per
share would have been $13.26, $12.53, $12.00 and $11.54, respectively, and
pro forma earnings per share would have been $.75, $.67, $.61 and $.56 for
the year ended September 30, 1997. If the RSP is funded from newly issued
shares, stockholders' voting interests could be diluted by up to
approximately 4.34%. See "Management of Peoples Savings Bank -- Proposed
Future Stock Benefit Plans -- Restricted Stock Plan."
(3) Pro forma net income per share calculations include the number of shares
assumed to be sold in the conversion and, in accordance with SOP 93-6,
exclude ESOP shares which would not have been released during the period.
Accordingly, 26,809, 31,540, 36,271 and 41,712 shares have been subtracted
from the shares assumed to be sold at the minimum, mid-point, maximum, and
maximum, as adjusted, of the EVR, respectively, and 325,941, 383,460,
440,979 and 507,126 shares are assumed to be outstanding at the minimum,
mid-point, maximum, and maximum, as adjusted of the EVR. For the period
ended March 31, 1998, 25,398, 29,880, 34,362 and 39,516 shares have been
subtracted from the shares assumed to be sold at the minimum, midpoint,
maximum and maximum, as adjusted, of the EVR, respectively, and 327,352,
385,120, 442,888 and 509,322 shares are assumed to be outstanding at the
minimum, midpoint, maximum and maximum, as adjusted, of the EVR for the
period ended September 30, 1997. See Note 1 above.
20
<PAGE>
(4) Assumes that following the consummation of the conversion, the Company will
adopt the Option Plan, which if implemented within one year of conversion
would be subject to regulatory review and board of director and stockholder
approval, and that such plan would be considered and voted upon at a
meeting of the Company stockholders to be held no earlier than six months
after the conversion. Under the Option Plan, employees and directors could
be granted options to purchase an aggregate amount of shares equal to 10%
of the shares issued in the conversion at an exercise price equal to the
market price of the shares on the date of grant. In the event the shares
issued under the Option Plan were newly issued rather than purchased in the
open market, the voting interests of existing stockholders could be diluted
by up to approximately 10.83%. At the minimum, midpoint, maximum and the
maximum, as adjusted, of the EVR, if all shares under the Option Plan were
newly issued at the beginning of the respective periods and the exercise
price for the option shares were equal to the Purchase Price, the number of
outstanding shares would increase to 361,216, 424,960, 488,704 and 562,010,
respectively, pro forma stockholders' equity per share at March 31, 1998,
would have been $13.79, $13.06, $12.52 and $12.05, respectively and pro
forma earnings per share would have been $.40, $.35, $.32 and $.29,
respectively, for the six months ended March 31, 1998. At the minimum,
midpoint, maximum and the maximum, as adjusted, of the EVR, if all shares
under the Option Plan were newly issued at the beginning of the period and
the exercise price for the option shares were equal to the Purchase Price,
the number of outstanding shares would increase to 362,627, 426,620,
490,613 and 564,205, respectively, pro forma stockholders' equity per share
at September 30, 1997 would have been $13.44, $12.76, $12.26 and $11.82,
respectively, and pro forma earnings per share would have been $.69, $.62,
$.56 and $.51, respectively.
(5) The amounts shown do not reflect the federal income tax consequences of the
potential restoration to income of the bad debt reserves for income tax
purposes, which would be required in the event of liquidation. The amounts
shown also do not reflect the amounts required to be distributed in the
event of liquidation to eligible depositors from the liquidation account
which will be established upon the consummation of the conversion. Pro
forma stockholders' equity information is not intended to represent the
fair market value of the shares, the current value of our assets or
liabilities or the amounts, if any, that would be available for
distribution to stockholders in the event of liquidation. Such pro forma
data may be materially affected by a change in the number of shares to be
sold in the conversion and by other factors.
21
<PAGE>
HISTORICAL AND PRO FORMA CAPITAL COMPLIANCE
The following table presents our historical and pro forma capital
position relative to our capital requirements as of March 31, 1998. For a
discussion of the assumptions underlying the pro forma capital calculations
presented below, see "Use of Proceeds," "Capitalization" and "Pro Forma Data."
The definitions of the terms used in the table are those provided in the capital
regulations issued by the OTS. For a discussion of the capital standards
applicable to us, see "Regulation -- Savings Institution Regulation --
Regulatory Capital Requirements."
<TABLE>
<CAPTION>
Pro Forma(1)
-------------------------------------------------------------------------------------------
5,488,380
$3,527,500 $4,150,000 $4,772,500 Maximum,
Minimum Midpoint Maximum as adjusted
------------------- -------------------- -------------------- ---------------------
Percentage Percentage Percentage Percentage Percentage
Amount of Assets(2) Amount of Assets(2) Amount of Assets(2) Amount of Assets(2) Amount of Assets(2)
------ ------------ ------ ------------ ------ ------------ ------ ------------ ------ -------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GAAP
Capital.......... $2,225 5.75% $4,201 10.33% $4,592 11.19% $ 4,984 12.03% $ 5,435 12.97%
===== ==== ===== ===== ===== ===== ====== ===== ====== =====
Tangible
Capital:(3)
Regulatory
requirement...... $ 579 1.50% $ 609 1.50% $ 615 1.50% $ 620 1.50% $ 627 1.50%
Actual
capital.......... 2,143 5.55 4,119 10.15 4,510 11.01 4,902 11.85 5,353 12.81
------ ---- ------ ----- ------ ----- ------- ----- ------- -----
Excess............. $1,564 4.05% $3,510 8.65% $3,895 9.51% $ 4,282 10.35% $ 4,726 11.31%
===== ==== ===== ===== ===== ===== ====== ===== ====== =====
Core Capital:(3)
Regulatory
requirement(4)... $1,158 3.00% $1,217 3.00% $1,229 3.00% $ 1,241 3.00% $ 1,254 3.00%
Actual capital..... 2,143 5.55 4,119 10.15 4,510 11.01 4,902 11.85 5,353 12.81
----- ---- ------ ----- ------ ----- ------- ----- ------- -----
Excess............. $ 985 2.55% $2,902 7.15% $3,281 8.01% $ 3,661 8.85% $ 4,099 9.81%
===== ==== ===== ===== ===== ===== ====== ===== ====== =====
Risk-Based
Capital:(4)
Regulatory
requirement...... $1,538 8.00% $1,600 8.00% $1,612 8.00% $ 1,625 8.00% $ 1,640 8.00%
Actual capital..... 2,268 11.80 4,244 21.22 4,635 23.00 5,027 24.75 5,478 26.72
----- ----- ------ ----- ------ ----- ------- ----- ------- -----
Excess............. $ 730 3.80% $2,644 13.22% $3,023 15.00% $ 3,402 16.75% $ 3,838 18.72%
===== ===== ===== ===== ===== ===== ====== ===== ====== =====
</TABLE>
- ---------------------
(1) Institutions must value available-for-sale debt securities at amortized
cost, rather than at fair value, for purposes of calculating regulatory
capital. Institutions are still required to comply with SFAS No. 115 for
financial reporting purposes. The pro forma data has been adjusted to
reflect reductions in our capital that would result from an assumed 8%
purchase by the ESOP and 4% purchase by the RSP as of March 31, 1998. It is
assumed that the Company will retain 25% of net proceeds from the offering.
See "Use of Proceeds."
(2) GAAP, adjusted, or risk-weighted assets as appropriate.
(3) The unrealized gain on securities available-for-sale of $82,460 has been
deducted from GAAP Capital to arrive at our Tangible and Core Capital.
(4) Our risk-weighted assets as of March 31, 1998, totalled approximately $19.2
million. Net proceeds available for investment by us are assumed to be
invested in interest-earning assets that have a 50% risk-weighing.
22
<PAGE>
THE CONVERSION
Our board of directors and the OTS have approved the Plan subject to
approval by our members, and subject to the satisfaction of certain other
conditions imposed by the OTS in its approval. OTS approval, however, does not
constitute a recommendation or endorsement of the Plan.
General
On March 2, 1998, our board of directors adopted a Plan of Conversion,
pursuant to which we will convert from a federally chartered mutual savings bank
to a federally chartered stock savings bank and become a wholly owned subsidiary
of the Company. The conversion will include adoption of the proposed federal
stock charter and bylaws which will authorize the issuance of capital stock by
us. Under the Plan, our capital stock is being sold to the Company and the
common stock of the Company is being offered to our eligible depositors and
other members and then to the public. The conversion will be accounted for at
historical cost in a manner similar to a pooling of interests. The OTS has
approved the Company's application to become a savings and loan holding company
and to acquire all of our common stock to be issued in the conversion.
The shares are first being offered in a subscription offering to
holders of subscription rights. To the extent shares of common stock remain
available after the subscription offering, shares of common stock may be offered
in a community offering on a best efforts basis in such a manner as to promote a
wide distribution of the shares. The community offering, if any, may commence
anytime subsequent to the commencement of the subscription offering. Shares not
subscribed for in the subscription and community offerings may be offered for
sale by the Company on a best efforts basis by a selling group of selected
broker/dealers (which may include Ryan Beck & Co.) in a syndicated community
offering managed by Ryan Beck & Co. We have the right, in our sole discretion,
to accept or reject, in whole or in part, any orders to purchase shares of the
common stock received in the community and syndicated community offerings. See
"-- Community Offering."
Shares of common stock in an amount equal to our pro forma market value
as a stock savings institution must be sold in order for the conversion to
become effective. The community offering or syndicated community offering must
be completed within 45 days after the last day of the subscription offering
period unless such period is extended by us with the approval of the OTS. The
Plan provides that the conversion must be completed within 24 months after the
date of the approval of the Plan by our members.
In the event that we are unable to complete the sale of common stock
and effect the conversion within 45 days after the end of the subscription
offering, we may request an extension of the period by the OTS. No assurance can
be given that the extension would be granted if requested. Due to the volatile
nature of market conditions, no assurances can be given that our valuation would
not substantially change during any such extension. If the EVR of the shares
must be amended, no assurance can be given that such amended EVR would be
approved by the OTS. Therefore, it is possible that if the conversion cannot be
completed within the requisite period, we may not be permitted to complete the
conversion. A substantial delay caused by an extension of the period may also
significantly increase the expense of the conversion. No sales of the shares may
be completed in the offering unless the Plan is approved by our members.
The completion of the offering is subject to market conditions and
other factors beyond our control. No assurance can be given as to the length of
time following approval of the Plan at the meeting
23
<PAGE>
of our members that will be required to complete the sale of shares being
offered in the conversion. If delays are experienced, significant changes may
occur in our estimated pro forma market value upon conversion together with
corresponding changes in the offering price and the net proceeds to be realized
by us from the sale of the shares. In the event the conversion is terminated, we
will charge all conversion expenses against current income and any funds
collected by us in the offering will be promptly returned, with interest, to
each potential investor.
Effects of Conversion to Stock Form on Depositors and Borrowers of Peoples
Savings Bank
Voting Rights. Currently in our mutual form, our depositor and certain
borrower members as of December 2, 1996, who continue to be borrowers have
voting rights and may vote for the election of directors. Following the
conversion, all voting rights will be held solely by stockholders.
Savings Accounts and Loans. The balances, terms and FDIC insurance
coverage of savings accounts will not be affected by the conversion.
Furthermore, the amounts and terms of loans and obligations of the borrowers
under their individual contractual arrangements with us will not be affected by
the conversion.
Tax Effects. We have received an opinion from our counsel, Malizia,
Spidi, Sloane & Fisch, P.C., on the federal tax consequences of the conversion.
The opinion has been filed as an exhibit to the registration statement of which
this prospectus is a part and covers those federal tax matters that are material
to the transaction. The opinion provides, in part, that: (i) the conversion will
qualify as a reorganization under Section 368(a)(1)(F) of the Code, and no gain
or loss will be recognized by us by reason of the proposed conversion; (ii) no
gain or loss will be recognized by us upon the receipt of money from the Company
for our stock, and no gain or loss will be recognized by the Company upon the
receipt of money for the shares; (iii) our assets will have the same basis
before and after the conversion; (iv) the holding period of our assets will
include the period during which the assets were held by us in our mutual form;
(v) no gain or loss will be recognized by the Eligible Account Holders,
Supplemental Eligible Account Holders, and Other Members upon the issuance to
them of withdrawable savings accounts in us in the stock form in the same dollar
amount as their savings accounts in us in the mutual form plus an interest in
our liquidation account in the stock form in exchange for their savings accounts
in us in the mutual form; (vi) provided that the amount to be paid for the
shares pursuant to the subscription rights is equal to the fair market value of
such shares, no gain or loss will be recognized by Eligible Account Holders,
Supplemental Eligible Account Holders, and Other Members under the Plan upon the
distribution to them of nontransferable subscription rights; (vii) the basis of
each account holder's savings accounts after the conversion will be the same as
the basis of his savings accounts prior to the conversion, decreased by the fair
market value of the nontransferable subscription rights received and increased
by the amount, if any, of gain recognized on the exchange; (viii) the basis of
each account holder's interest in the liquidation account will be zero; (ix) the
holding period of the common stock acquired through the exercise of subscription
rights shall begin on the date on which the subscription rights are exercised;
(x) we will succeed to and take into account our earnings and profits or deficit
in earnings and profits as of the date of conversion; (xi) immediately after
conversion, we will succeed to the bad debt reserve accounts previously held by
us, and the bad debt reserves will have the same character in our hands after
conversion as if no distribution or transfer had occurred; and (xii) the
creation of the liquidation account will have no effect on our taxable income.
The opinion from Malizia, Spidi, Sloane & Fisch, P.C. is based in part
on the assumption that the exercise price of the subscription rights will be
approximately equal to the fair market value of those shares at the time of the
completion of the proposed conversion. We have received an opinion of FinPro,
Inc. which, based on certain assumptions, concludes that the subscription rights
to be received by Eligible
24
<PAGE>
Account Holders and other eligible subscribers do not have any economic value at
the time of distribution or at the time the subscription rights are exercised.
Such opinion is based on the fact that such rights are: (i) acquired by the
recipients without payment therefor, (ii) non-transferable, (iii) of short
duration, and (iv) afford the recipients the right only to purchase shares at a
price equal to their estimated fair market value, which will be the same price
at which shares for which no subscription right is received in the subscription
offering will be offered in a community offering. If the subscription rights
granted to Eligible Account Holders or other eligible subscribers are deemed to
have an ascertainable value, receipt of such rights would be taxable only to
those Eligible Account Holders or other eligible subscribers who exercise the
subscription rights in an amount equal to such value (either as a capital gain
or ordinary income), and we could recognize gain on such distribution.
We are also subject to New Jersey income taxes and have received an
opinion from Wells, Singer, Rubin & Musulin that the conversion will be treated
for New Jersey state tax purposes similar to the conversion's treatment for
federal tax purposes. The opinion has been filed as an exhibit to the
registration statement to which this prospectus is a part and covers those state
tax matters that are material to the transaction.
Unlike a private letter ruling, the opinions of Malizia, Spidi, Sloane
& Fisch, P.C., Wells, Singer, Rubin & Musulin, and FinPro, Inc. have no binding
effect or official status, and no assurance can be given that the conclusions
reached in any of those opinions would be sustained by a court if contested by
the IRS or the New Jersey tax authorities. Eligible Account Holders,
Supplemental Eligible Account Holders, and Other Members are encouraged to
consult with their own tax advisers as to the tax consequences in the event the
subscription rights are deemed to have an ascertainable value.
Liquidation Account. In the unlikely event of our complete liquidation
in our present mutual form, each depositor is entitled to equal distribution of
any of our assets, pro rata according to the value of his/her accounts,
remaining after payment of claims of all creditors (including the claims of all
depositors to the withdrawal value of their accounts). Each depositor's pro rata
share of such remaining assets would be in the same proportion as the value of
his/her deposit accounts was to the total value of all deposit accounts held by
us at the time of liquidation.
Upon a complete liquidation after the conversion, each depositor would
have a claim, as a creditor, of the same general priority as the claims of all
of our other general creditors. Therefore, except as described below, a
depositor's claim would be solely in the amount of the balance in his deposit
account plus accrued interest. A depositor would not have an interest in the
residual value of our assets above that amount, if any.
The Plan provides for the establishment, upon completion of the
conversion, of a special "liquidation account" for the benefit of Eligible
Account Holders and Supplemental Eligible Account Holders. Each Eligible Account
Holder and Supplemental Eligible Account Holder, if he continues to maintain his
deposit account with us, would be entitled, upon our complete liquidation after
conversion, to an interest in the liquidation account prior to any payment to
stockholders. Each Eligible Account Holder would have an initial interest in
such liquidation account for each deposit account held in us on the qualifying
date, December 31, 1996. Each Supplemental Eligible Account Holder would have a
similar interest as of the qualifying date, June 30, 1998. The interest as to
each deposit account would be in the same proportion of the total liquidation
account as the balance of the deposit account on the qualifying dates was to the
aggregate balance in all the deposit accounts of Eligible Account Holders and
Supplemental Eligible Account Holders on such qualifying dates. However, if the
amount in the deposit account on any annual closing date (September 30) is less
than the amount in such account on the respective qualifying dates, then the
interest in this special liquidation account would be reduced at that
25
<PAGE>
time by an amount proportionate to any such reduction, and the interest would
cease to exist if such deposit account was closed. The interest in the special
liquidation account will never be increased despite any increase in the related
deposit account after the respective qualifying dates.
No merger, consolidation, purchase of bulk assets with assumptions of
savings accounts and other liabilities, or similar transactions with another
insured institution in which transaction we in our converted form are not the
surviving institution shall be considered a complete liquidation. In such
transactions, the liquidation account shall be assumed by the surviving
institution.
Subscription Rights and the Subscription Offering
Non-transferable subscription rights to purchase shares of the common
stock have been granted to persons and entities entitled to purchase shares in
the subscription offering under the Plan. If the community offering or
syndicated community offering, as described below, extends beyond 45 days
following the completion of the subscription offering, subscribers will be
resolicited. Subscription priorities have been established for the allocation of
stock to the extent that more shares are subscribed for than are to be issued in
the conversion subject to the purchase limitations set forth in the Plan and as
described below under "-- Limitations on Purchases and Transfer of Shares." The
following priorities have been established:
Category 1: Eligible Account Holders (First Priority). Eligible Account Holders
are persons who had a deposit account of at least $50 with us on December 31,
1996. Each Eligible Account Holder will receive non-transferable subscription
rights on a priority basis to purchase that number of shares of common stock
which is equal to the greater of 6,000 shares ($60,000), or 15 times the product
(rounded down to the next whole number) obtained by multiplying the total number
of shares to be issued by a fraction of which the numerator is the amount of the
qualifying deposit of the Eligible Account Holder and the denominator is the
total amount of qualifying deposits of all Eligible Account Holders (subject to
the maximum purchase limitation). If there is an oversubscription in this
category, shares shall be allocated among subscribing Eligible Account Holders
so as to permit each such account holder, to the extent possible, to purchase
the lesser of 100 shares or the total amount of his subscription. Any shares not
so allocated shall be allocated among the subscribing Eligible Account Holders
on an equitable basis, related to the amounts of their respective qualifying
deposits as compared to the total qualifying deposits of all subscribing
Eligible Account Holders. Only a person(s) with a qualifying deposit as of the
eligibility record date (or a successor entity or estate) shall receive
subscription rights in this category. Any Person(s) added to a Savings Account
after the Eligibility Record Date is not an Eligible Account Holder.
Subscription rights received by officers and directors in this category based on
their increased deposits with us in the one-year period preceding December 31,
1996, are subordinated to the subscription rights of other Eligible Account
Holders. See "-- Limitations on Purchases and Transfer of Shares."
Category 2: Tax-Qualified Employee Benefit Plans (Second Priority). Our
tax-qualified employee benefit plans ("Employee Plans") have been granted
subscription rights to purchase up to 10% of the total shares issued in the
conversion. The ESOP is an Employee Plan.
The right of Employee Plans to subscribe for shares is subordinate to
the right of the Eligible Account Holders to subscribe for shares. However, in
the event the offering results in the issuance of shares above the maximum of
the EVR (i.e., more than 548,838 shares), the Employee Plans have a priority
right to fill their subscription (the ESOP, the only Employee Plan, currently
intends to purchase up to 8% of the common stock issued in the conversion). The
Employee Plans may, however, determine to purchase some or all of the shares
covered by their subscriptions after the conversion in the open
26
<PAGE>
market or, if approved by the OTS, out of authorized but unissued shares in the
event of an oversubscription.
Category 3: Supplemental Eligible Account Holders (Third Priority). Supplemental
Eligible Account Holders are persons who had a deposit account of at least $50
with us on June 30, 1998. Each Supplemental Eligible Account Holder who is not
an Eligible Account Holder will receive non-transferable subscription rights to
purchase that number of shares which is equal to the greater of 6,000 shares
($60,000), or 15 times the product (rounded down to the next whole number)
obtained by multiplying the total number of shares to be issued by a fraction of
which the numerator is the amount of the qualifying deposit of the Supplemental
Eligible Account Holder and the denominator is the total amount of qualifying
deposits of all Supplemental Eligible Account Holders (subject to the maximum
purchase limitation). If the allocation made in this paragraph results in an
oversubscription, shares shall be allocated among subscribing Supplemental
Eligible Account Holders so as to permit each such account holder, to the extent
possible, to purchase the lesser of 100 shares or the total amount of his
subscription. Any shares not so allocated shall be allocated among the
subscribing Supplemental Eligible Account Holders on an equitable basis, related
to the amounts of their respective qualifying deposits as compared to the total
qualifying deposits of all subscribing Supplemental Eligible Account Holders.
See "-- Limitations on Purchases and Transfer of Shares."
The rights of Supplemental Eligible Account Holders to subscribe for
shares is subordinate to the rights of the Eligible Account Holders and Employee
Plans to subscribe for shares.
Category 4: Other Members (Fourth Priority). Other Members are persons who have
a deposit account of at least $50 on ________ ____, 1998, the voting record date
of our special meeting, and borrowers as of December 2, 1996 who continue to be
borrowers as of the date of our special meeting. Each Other Member who is not an
Eligible Account Holder or Supplemental Eligible Account Holder, will receive
non-transferable subscription rights to purchase up to 6,000 shares ($60,000) to
the extent such shares are available following subscriptions by Eligible Account
Holders, Employee Plans, and Supplemental Eligible Account Holders. In the event
there are not enough shares to fill the orders of the Other Members, the
subscriptions of the Other Members will be allocated so that each subscribing
Other Member will be entitled to purchase the lesser of 100 shares or the number
of shares ordered. Any remaining shares will be allocated among Other Members
whose subscriptions remain unsatisfied on a 100 share (or whatever lesser amount
is available) per order basis until all orders have been filled on the remaining
shares have been allocated. See "-- Limitations on Purchases and Transfer of
Shares."
Members in Non-Qualified States. We will make reasonable efforts to
comply with the securities laws of all states in the United States in which
persons entitled to subscribe for the shares pursuant to the Plan reside.
However, no person will be offered or allowed to purchase any shares under the
Plan if he resides in a foreign country or in a state with respect to which any
of the following apply: (i) a small number of persons otherwise eligible to
subscribe for shares under the Plan reside; (ii) the granting of subscription
rights or offer or sale of shares of common stock to those persons would require
either us or our employees to register under the securities laws of that state
or foreign country as a broker or dealer, or to register or otherwise qualify
our securities for sale in that state or foreign country; or (iii) such
registration or qualification would be impracticable for reasons of cost or
otherwise. No payments will be made in lieu of the granting of subscription
rights to any person.
Restrictions on Transfer of Subscription Rights and Shares. Persons are
prohibited from transferring or entering into any agreement or understanding to
transfer the legal or beneficial ownership of their subscription rights.
Subscription rights may be exercised only by the person to whom they are granted
and only for his or her account. Each person subscribing for shares will be
required to certify
27
<PAGE>
that he/she is purchasing shares solely for his/her own account and has not
entered into an agreement or understanding regarding the sale or transfer of
those shares. The regulations also prohibit any person from offering or making
an announcement of an offer or intent to make an offer to purchase subscription
rights or shares of common stock prior to the completion of the conversion.
We will pursue any and all legal and equitable remedies in the event we
become aware of the transfer of subscription rights and will not honor orders we
believe to involve the transfer of subscription rights or which appear to us to
present other irregularities.
Expiration Date. The Subscription Offering will expire at 12:00 noon,
Eastern Time, on ________ ____, 1998 (Expiration Date). Subscription rights will
become void if not exercised prior to the Expiration Date.
Community Offering
To the extent that shares remain available and subject to market
conditions at or near the completion of the subscription offering, we may offer
shares to certain members of the general public in a community offering, with a
preference given to natural persons who reside in Burlington County, New Jersey.
Any orders received in connection with the community offering, if any, will
receive a lower priority than orders properly made in the subscription offering
by persons exercising Subscription Rights. Common stock sold in the community
offering will be sold at the same price as all shares in the subscription
offering. We have the right to reject any orders in whole or in part in the
community offering.
No person or persons ordering through a single account, nor any person,
associate or group of persons acting in concert may purchase more than 6,000
shares or $60,000 of stock sold in the conversion. To order common stock in
connection with the community offering, if held, an executed stock order form
along with full payment must be received prior to the termination of the
community offering.
The date by which orders must be received in the community offering
("community offering Expiration Date") will be set by us at the time of
commencement of the community offering; provided however, if the offering is
extended beyond ________ ____, 1998, each subscriber will have the opportunity
to maintain, modify, or rescind his order. In such event, all funds received in
the community offering will be promptly returned with interest unless the
subscriber affirmatively indicates otherwise.
In the event that an order is not accepted in the community offering or
that the conversion is not consummated, we will promptly refund with interest
the funds received. If the appraisal of the estimated market value of the Bank
and the Company is less than $3,527,500 or more than $5,488,380, each subscriber
will have the right to modify or rescind his order.
Syndicated Community Offering
To the extent that shares remain available and subject to market
conditions we may offer shares of common stock not purchased in the subscription
and community offerings in a syndicated community offering through a syndicate
of selected broker/dealers to be formed and managed by Ryan, Beck & Co. The
syndicated community offering, if held, will be conducted to achieve the widest
distribution of shares, subject to our right to reject orders in whole or in
part in our sole discretion. Neither Ryan, Beck & Co. nor any registered
broker/dealer will have any obligation to take or purchase any shares in the
28
<PAGE>
syndicated community offering. Shares sold in the syndicated community offering
will be sold at $10.00 per share.
The purchase limitations that apply in the subscription and community
offerings also apply in the syndicated community offering. In the event of a
syndicated community offering, Ryan, Beck & Co. will form a selling group of
selected NASD member firms (including Ryan, Beck & Co.) under a selected
dealers' agreement. The Company will pay a fee equal to 5.5% of the aggregate
amount of stock sold pursuant to such selected dealer agreements. Ryan, Beck &
Co. will not commence a syndicated community offering through such a selling
group without the Company's prior approval. See "The Conversion -- Marketing
Arrangements" and "-- Community Offering."
The syndicated community offering will terminate not more than 45 days
following the Expiration Date, unless we further extend the offering with the
approval of the OTS and we resolicit subscribers.
Ordering and Receiving Shares
Use of Order Forms. Rights to subscribe for stock in the subscription
offering or to purchase stock in the community offering (if any) may only be
exercised by completing an original order form and certification. Persons
ordering shares in the subscription offering must deliver by mail or in person a
properly completed and signed original order form to us prior to the Expiration
Date. Order forms must be accompanied by full payment for all shares ordered.
See "-- Payment for Shares." Subscription rights under the Plan will expire on
the Expiration Date, whether or not we have been able to locate each person
entitled to subscription rights. Once submitted, subscription orders cannot be
revoked without our consent unless the conversion is not completed within 45
days of the Expiration Date.
In the event an order form (i) is not delivered and is returned to us
by the United States Postal Service or we are unable to locate the addressee,
(ii) is not received or is received after the Expiration Date, (iii) is
defectively completed or executed, or (iv) is not accompanied by full payment
for the shares subscribed for (including instances where a savings account or
certificate balance from which withdrawal is authorized is insufficient to fund
the amount of such required payment), the subscription rights for the person to
whom such rights have been granted will lapse as though that person failed to
return the completed order form within the time period specified. We may, but
will not be required to, waive any irregularity on any order form or require the
submission of corrected order forms or the remittance of full payment for
subscribed shares by such date as we specify. The waiver of an irregularity on
an order form in no way obligates us to waive any other irregularity on that or
on any other order form. Waivers will be considered on a case by case basis.
Photocopies of order forms, payments from private third parties, or electronic
transfers of funds will not be accepted. Our interpretation of the terms and
conditions of the Plan and of the acceptability of the order forms will be
final. We have the right to investigate any irregularity on any order form.
To ensure that each purchaser receives a prospectus at least 48 hours
before the Expiration Date in accordance with Rule 15c2-8 of the Exchange Act,
no prospectus will be mailed any later than five days prior to such date or hand
delivered any later than two days prior to such date. Execution of the order
form will confirm receipt or delivery in accordance with Rule l5c2-8. Order
forms will only be distributed with a prospectus.
Payment for Shares. Payment for shares of common stock may be made (i)
in cash, if delivered in person, (ii) by check or money order, or (iii) by
authorization of withdrawal from savings accounts (including certificates of
deposit) maintained with us. Appropriate means by which such withdrawals may be
authorized are provided for in the order form. Once such a withdrawal has been
authorized, no
29
<PAGE>
portion of the designated withdrawal amount may be used by the subscriber for
any purpose other than to purchase the shares. Where payment has been authorized
to be made through withdrawal from a savings account, the sum authorized for
withdrawal will continue to earn interest at the contract rate until the
conversion has been completed or terminated. Interest penalties for early
withdrawal applicable to certificate accounts will not apply to withdrawals
authorized for the purchase of shares; however, if a partial withdrawal results
in a certificate account with a balance less than the applicable minimum balance
requirement, the certificate evidencing the remaining balance will earn interest
at the passbook savings account rate subsequent to the withdrawal. Payments made
in cash or by check or money order, will be placed in a segregated savings
account and interest will be paid by us at our passbook savings account rate
from the date payment is received until the conversion is completed or
terminated. An executed order form, once received by us, may not be modified,
amended, or rescinded without our consent, unless the conversion is not
completed within 45 days after the conclusion of the subscription offering, in
which event subscribers may be given an opportunity to increase, decrease, or
rescind their order. In the event that the conversion is not consummated, all
funds submitted pursuant to the offering will be refunded promptly with
interest.
Owners of self-directed IRAs may use the assets of such IRAs to
purchase shares in the offering. Persons with IRAs maintained with us must have
their accounts transferred to an unaffiliated institution or broker to purchase
shares in the offering. The Stock Information Center can assist you in
transferring your self-directed IRA. Because of the paperwork involved, persons
owning IRAs who wish to use their IRA account to purchase stock in the offering,
must contact the Stock Information Center no later than ________ ____, 1998.
The ESOP may subscribe for shares by submitting its order form along
with evidence of a loan commitment from a financial institution or the Company
for the purchase of the shares during the subscription offering and by making
payment for shares on the date of completion of the conversion.
Federal regulations prohibit us from lending funds or extending credit
to any person to purchase shares in the conversion.
Delivery of Stock Certificates. Certificates representing shares of
common stock issued in the conversion will be mailed to the person(s) at the
address noted on the order form, as soon as practicable following consummation
of the conversion. Any certificates returned as undeliverable will be held until
properly claimed or otherwise disposed. Persons ordering shares might not be
able to sell their shares until they receive their stock certificates.
Plan of Distribution
Materials for the offering have been distributed to eligible
subscribers by mail. Additional copies are available at our Stock Information
Center. Our officers may be available to answer questions about the conversion.
Responses to questions about us will be limited to the information contained in
this document. Officers will not be authorized to render investment advice. All
subscribers for the shares being offered will be instructed to send payment
directly to us. The funds will be held in a segregated special escrow account
and will not be released until the closing of the conversion or its termination.
30
<PAGE>
Marketing Arrangements
We have engaged Ryan, Beck & Co. as our financial advisor in connection
with the offering. Ryan, Beck & Co. has agreed to exercise its best efforts to
assist us in the sale of the shares in the offering. Ryan, Beck & Co. will
receive a fee of $125,000, which will include reimbursement for out-of-pocket
expenses (including legal fees and out-of-pocket expenses of such counsel)
incurred by Ryan, Beck & Co. We have also agreed to indemnify Ryan, Beck & Co.
for reasonable costs and expenses in connection with certain claims or
liabilities which might be asserted against Ryan, Beck & Co. This
indemnification covers the investigation, preparation of defense and defense of
any action, proceeding or claim relating to, among other things,
misrepresentation or breach of warranty of the written agreement between Ryan,
Beck & Co. and the Bank or the omission or alleged omission of a material fact
required to be stated or necessary in order to make disclosure in the prospectus
and related documents not misleading. In the event that a syndicated community
offering is conducted, we will pay Ryan, Beck & Co. a fee equal to 5.5% of the
aggregate amount of our common stock sold pursuant to any selected dealer
agreements Ryan, Beck has entered into with any broker/dealer. Ryan, Beck & Co.
will, however, not commence sales through these broker/dealers without our prior
approval.
The shares will be offered principally by the distribution of this
document and through activities conducted at the Stock Information Center. The
Stock Information Center is expected to operate during our normal business hours
throughout the offering. A registered representative employed by Ryan, Beck &
Co. will be working at, and supervising the operation of, the Stock Information
Center. Ryan, Beck & Co. will assist us in responding to questions regarding the
conversion and the offering and processing order forms. Our personnel will be
present in the Stock Information Center to assist Ryan, Beck & Co. with clerical
matters and to answer questions related solely to our business.
Stock Pricing
We have retained FinPro, Inc., an independent consulting and appraisal
firm, which is experienced in the evaluation and appraisal of business entities,
including savings institutions involved in the conversion process, to prepare an
appraisal of our estimated market value. FinPro, Inc. will receive fees of
$13,000 for preparing the appraisal and $11,000 for its assistance in connection
with the preparation of a business plan and also will be reimbursed for
reasonable out-of-pocket expenses. We have agreed to indemnify FinPro, Inc.
under certain circumstances against liabilities and expenses arising out of or
based on the services provided by FinPro, Inc.
FinPro, Inc. has prepared the appraisal in reliance upon the
information contained herein, including the financial statements. The appraisal
contains an analysis of a number of factors including, but not limited to, our
financial condition and operating trends, the competitive environment within
which we operate, operating trends of certain savings institutions and savings
and loan holding companies, relevant economic conditions, both nationally and in
the State of New Jersey, which affect the operations of savings institutions,
and stock market values of certain savings institutions. In addition, FinPro,
Inc. has advised us that it has considered the effect of the additional capital
raised by the sale of the shares on our estimated aggregate pro forma market
value.
On the basis of the above, FinPro, Inc. has determined, in its opinion,
that as of June 12, 1998, our estimated market value was $4,150,000. OTS
regulations require, however, that the appraiser establish a range of value for
the stock to allow for fluctuations in the aggregate value of the stock due to
changing market conditions and other factors. Accordingly, FinPro, Inc. has
established a range of value from $3,527,500 to $4,772,500 for the offering, the
EVR. The EVR will be updated prior to
31
<PAGE>
consummation of the conversion and the EVR may increase to $5,488,380 without
resolicitation of subscriptions.
The board of directors has reviewed the independent appraisal,
including the stated methodology of the independent appraiser and the
assumptions used in the preparation of the independent appraisal. The board of
directors is relying upon the expertise, experience and independence of the
appraiser and is not qualified to determine the appropriateness of the
assumptions.
In order for stock sales to take place FinPro, Inc. must confirm to the
OTS that, to the best of FinPro, Inc.'s knowledge and judgment, nothing of a
material nature has occurred which would cause FinPro, Inc. to conclude that the
aggregate sale price for the shares would not be compatible with FinPro, Inc.'s
estimate of our pro forma market value immediately upon conversion. If, however,
facts do not justify such a statement, an amended EVR may be established.
The appraisal is not a recommendation of any kind as to the
advisability of purchasing these shares. In preparing the appraisal, FinPro,
Inc. has relied upon and assumed the accuracy and completeness of the financial
and statistical information we provided them. FinPro, Inc. did not independently
verify the financial statements and other information we provided, nor did
FinPro, Inc. independently value our assets and liabilities. The appraisal
considers us only as a going concern and it should not be viewed as our
liquidation value. Moreover, because the appraisal is based upon estimates and
projections of a number of matters which are subject to change, the market price
of the common stock could decline below $10.00.
Change in Number of Shares to be Issued in the Conversion
Depending on market and financial conditions at the time of the
completion of the offering, we may significantly increase or decrease the number
of shares to be issued in the conversion. In the event of an increase in the
valuation, we may increase the total number of shares to be issued in the
conversion. An increase in the total number of shares to be issued in the
conversion would decrease a subscriber's percentage ownership interest and the
pro forma net worth (book value) per share and increase the pro forma net income
and net worth (book value) on an aggregate basis. In the event of a material
reduction in the valuation, we may decrease the number of shares to be issued to
reflect the reduced valuation. A decrease in the number of shares to be issued
in the conversion would increase a subscriber's percentage ownership interest
and the pro forma net worth (book value) per share and decrease pro forma net
income and net worth on an aggregate basis.
Persons ordering shares will not be permitted to modify or cancel their
orders unless the change in the number of shares to be issued in the conversion
results in an offering which is either less than $3,527,500 or more than
$5,488,380. Persons who did not subscribe for shares will not have the
opportunity to do so.
Limitations on Purchases and Transfer of Shares
The Plan provides for certain additional purchase limitations. The
minimum purchase is 25 shares and the maximum purchase for any person or persons
ordering through a single account, or for any person, associate, or group of
persons acting in concert, is 6,000 shares. However, the Employee Plans may
purchase up to 10% of the shares sold. The OTS regulations governing the
conversion provide that officers and directors and their associates may not
purchase, in the aggregate, more than 35% of the shares issued pursuant to the
conversion.
32
<PAGE>
Depending on market conditions and the results of the offering, the
board of directors may, if the OTS agrees, increase or decrease any of the
purchase limitations without the approval of our members and without
resoliciting subscribers. If the maximum purchase limitation is increased,
persons who ordered the maximum amount will be given the first opportunity to
increase their orders. In doing so the preference categories in the offerings
will be followed.
In the event of an increase in the total number of shares offered in
the conversion due to an increase in the EVR of up to 15% (the "Adjusted
Maximum"), the additional shares will be allocated in the following order of
priority: (i) to fill the Employee Plans' subscription of up to 10% of the
Adjusted Maximum number of shares (the ESOP currently intends to subscribe for
8%); (ii) in the event that there is an oversubscription by Eligible Account
Holders, to fill unfulfilled subscriptions of Eligible Account Holders; (iii) in
the event that there is an oversubscription by Supplemental Eligible Account
Holders, to fill unfulfilled subscriptions to Supplemental Eligible Account
Holders; (iv) in the event that there is an oversubscription by Other Members,
to fill unfulfilled subscriptions of Other Members; and (v) to fill unfulfilled
subscriptions in the community offering to the extent possible.
The term "associate" of a person means (i) any corporation or
organization (other than us or a majority-owned subsidiary of ours) of which
such person is an officer or partner or is, directly or indirectly, the
beneficial owner of 10% or more of any class of equity securities, (ii) any
trust or other estate in which such person has a substantial beneficial interest
or as to which such person serves as trustee or in a similar fiduciary capacity
(excluding tax-qualified employee stock benefit plans), and (iii) any relative
or spouse of such person or any relative of such spouse, who has the same home
as such person or who is one of our directors or officers, or a director or
officer of the Company or of any of our subsidiaries. For example, a corporation
of which a person serves as an officer would be an associate of that person, and
therefore all shares purchased by that corporation would be included with the
number of shares which that person individually could purchase pursuant to the
above limitations.
The term "officer" may include our chairman of the board, president,
vice presidents in charge of principal business functions, secretary and
treasurer and any other person performing similar functions. All references
herein to an officer have the same meaning as used for an officer in the Plan.
To order shares in the conversion, persons must certify that their
purchase does not conflict with the purchase limitations. In the event that the
purchase limitations are exceeded by any person (including any associate or
group of persons affiliated or otherwise acting in concert with such persons),
we will have the right to purchase from that person at $10.00 per share all
shares acquired by that person in excess of the purchase limitations. If the
excess shares have been sold by that person, we may recover the profit from the
sale of the shares by that person. We may assign our right either to purchase
the excess shares or to recover the profits from their sale.
Shares of common stock purchased pursuant to the conversion will be
freely transferable, except for shares purchased by our directors and officers.
For certain restrictions on the shares purchased by directors and officers, see
"-- Restrictions on Sales and Purchases of Shares by Directors and Officers." In
addition, under guidelines of the NASD, members of the NASD and their associates
are subject to certain restrictions on the transfer of securities purchased in
accordance with subscription rights and to certain reporting requirements upon
purchase of such securities.
33
<PAGE>
Restrictions on Repurchase of Shares
Generally, during the first year following the conversion, the Company
may not repurchase its shares and during each of the second and third years
following the conversion, the Company may repurchase up to five percent of the
outstanding shares provided they are purchased in open-market transactions.
Repurchases must not cause us to become undercapitalized and at least 10 days
prior notice of the repurchase must be provided to the OTS. The OTS may
disapprove a repurchase program upon a determination that (1) the repurchase
program would adversely affect our financial condition, (2) the information
submitted is insufficient upon which to base a conclusion as to whether the
financial condition would be adversely affected, or (3) a valid business purpose
was not demonstrated. However, the OTS may grant special permission to
repurchase shares after six months following the conversion and to repurchase
more than five percent during each of the second and third years. In addition,
SEC rules also govern the method, time, price, and number of shares of common
stock that may be repurchased by the Company and affiliated purchasers. If, in
the future, the rules and regulations regarding the repurchase of stock are
liberalized, the Company may utilize the rules and regulations then in effect.
Restrictions on Sales and Purchases of Shares by Directors and Officers
Shares purchased by directors and officers of the Company may not be
sold for one year following the conversion, except in the event of the death of
the director or officer. Any shares issued to directors and officers as a stock
dividend, stock split, or otherwise with respect to restricted stock shall be
subject to the same restrictions.
For three years following the conversion, directors and officers may
purchase shares only through a registered broker or dealer. Exceptions are
available only if the OTS has approved the purchase or the purchase is an arm's
length transaction and involves more than one percent of the outstanding shares.
Interpretation and Amendment of the Plan
We have the authority to interpret and amend the Plan. Our
interpretations are final. Amendments to the Plan after the receipt of member
approval will not need further member approval unless required by the OTS.
Conditions and Termination
Completion of the conversion requires (i) the approval of the Plan by
the affirmative vote of a majority of the total number of votes eligible to be
cast by our members, and (ii) completion of the sale of shares within 24 months
following approval of the Plan by our members. If these conditions are not
satisfied, the Plan will be terminated and we will continue our business in the
mutual form of organization. We may terminate the Plan at any time prior to the
meeting of members to vote on the Plan or at any time thereafter with the
approval of the OTS.
Other
All statements made in this document are hereby qualified by the
contents of the Plan of Conversion, the material terms of which are set forth
herein. The Plan of Conversion is attached to the proxy statement mailed to
certain depositors and borrowers. Copies of the Plan are available from us and
should be consulted for further information. Adoption of the Plan by our members
authorizes us to interpret, amend or terminate the Plan.
34
<PAGE>
PEOPLES SAVINGS BANK
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Six Months Ended Year Ended
March 31, September 30,
1998 1997 1997 1996
----------- ----------- ------------ --------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Interest income:
Loans receivable............................ $1,106,434 $ 976,936 $2,034,408 $1,778,091
Securities available-for-sale............... 9,346 8,062 21,049 66,236
Securities held-to-maturity................. 125,746 196,733 402,617 350,515
Mortgage-backed securities held-to-
maturity.................................. 90,990 80,895 176,755 173,957
---------- ---------- ---------- ----------
Total interest income................ 1,332,516 1,262,626 2,634,829 2,368,799
--------- --------- --------- ---------
Interest expense:
Deposits.................................... 676,511 625,839 1,328,640 1,186,639
Federal Home Loan Bank advances............. 500 62,012 80,443 35,282
----------- ---------- ---------- ----------
Total interest expense............... 677,011 687,851 1,409,083 1,221,921
Net interest income........................... 655,505 574,775 1,225,746 1,146,878
Provision for loan losses..................... 59,000 4,000 8,000 12,500
---------- ---------- ----------- ----------
Net interest income after provision
for loan losses............................. 596,505 570,775 1,217,746 1,134,378
---------- --------- --------- ---------
Noninterest income:
Fees and other service charges.............. 77,913 79,404 148,251 109,791
Collection on deficiency judgment........... 54,024 -- -- --
Gain (loss) on sale of assets............... -- -- (1,757) (501)
Income from REO............................. -- -- 7,966 --
Net realized gains on sale of
available-for-sale securities............ 933 -- 6,977 1,791
----------- ------------ ----------- -----------
Total noninterest income............. 132,870 79,404 161,437 111,081
---------- ---------- ---------- ----------
729,375 650,179 1,379,183 1,245,459
Noninterest expense:
Compensation and benefits................... 258,952 260,249 513,966 482,335
Occupancy and equipment..................... 114,274 108,256 217,985 219,499
Federal insurance premiums
and assessments........................... 17,205 23,709 40,339 275,740
Other....................................... 187,219 174,116 333,646 309,964
---------- --------- ---------- ----------
Total noninterest expense............ 577,650 566,330 1,105,936 1,287,538
---------- --------- --------- ---------
Income (loss) before provision
for income taxes............................ 151,725 83,849 273,247 (42,079)
Provision for income taxes.................... 38,045 22,000 81,340 (21,960)
---------- ---------- ---------- ----------
Net income........................... $ 113,680 $ 61,849 $ 191,907 $ (20,119)
========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements beginning on page F-5.
35
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
Management's discussion and analysis is intended to assist you in
understanding our financial condition and results of operations. The information
in this section should also be read with our Financial Statements and Notes to
the Financial Statements included elsewhere in this document.
General
The Company has recently been formed and, accordingly, has no results
of operations. The following discussion relates only to our financial condition
and results of operations. Please refer to our Pro Forma Data discussion on page
__ to see the potential effects of the offering on our financial statements.
Our results of operations depend primarily on net interest income,
which is determined by (i) the difference between rates of interest we earn on
our interest-earning assets and the rates we pay on interest-bearing liabilities
(interest rate spread), and (ii) the relative amounts of interest-earning assets
and interest-bearing liabilities. Our results of operations are also affected by
noninterest income, including, income from customer deposit account service
charges, gains and losses from the sale of investments and mortgage-backed
securities and noninterest expense, including, primarily, compensation and
employee benefits, federal deposit insurance premiums, office occupancy cost,
and data processing cost. Our results of operations are also affected
significantly by general and economic and competitive conditions, particularly
changes in market interest rates, government policies and actions of regulatory
authorities, all of which are beyond our control.
Market Risk Analysis
Our assets and liabilities may be analyzed by examining the extent to
which they are interest rate sensitive and by monitoring the expected effects of
interest rate changes on our net portfolio value.
An asset or liability is interest rate sensitive within a specific time
period if it will mature or reprice within that time period. If our assets
mature or reprice more quickly or to a greater extent than our liabilities, our
net portfolio value and net interest income would tend to increase during
periods of rising interest rates but decrease during periods of falling interest
rates. Conversely, if our assets mature or reprice more slowly or to a lesser
extent than our liabilities, our net portfolio value and net interest income
would tend to decrease during periods of rising interest rates but increase
during periods of falling interest rates. Our policy has been to address the
interest rate risk inherent in the historical savings institution business of
originating long-term loans funded by short-term deposits by maintaining
sufficient liquid assets for material and prolonged changes in interest rates
and by originating loans with shorter terms to maturity such as construction,
commercial and consumer loans. In addition, we have invested in adjustable-rate
mortgage-backed securities as an interest rate risk management strategy.
Net Portfolio Value
In order to encourage savings associations to reduce their interest
rate risk, the OTS adopted a rule incorporating an interest rate risk ("IRR")
component into the risk-based capital rules. The IRR component is a dollar
amount that will be deducted from total capital for the purpose of calculating
an institution's risk-based capital requirement and is measured in terms of the
sensitivity of its net portfolio value ("NPV") to changes in interest rates. NPV
is the difference between incoming and outgoing discounted cash flows from
assets, liabilities, and off-balance sheet contracts. An institution's IRR is
measured as the change to its NPV as a result of a hypothetical 200 basis point
("bp") change in market
36
<PAGE>
interest rates. A resulting change in NPV of more than 2% of the estimated
present value of total assets ("PV") will require the institution to deduct from
its capital 50% of that excess change. The rules provide that the OTS will
calculate the IRR component quarterly for each institution. Based on our asset
size and risk-based capital, we have been informed by the OTS that we are exempt
from this rule. Nevertheless, the following table presents our NPV at March 31,
1998, as calculated by the OTS, based on quarterly information we voluntarily
provided to the OTS.
<TABLE>
<CAPTION>
Changes Net Portfolio Value
in Market --------------------------------------------------------
Interest Rates $ Amount $ Change % Change NPV Ratio(1)
-------------- --------- ------------ ----------- ------------
(basis points) (Dollars in Thousands)
<S> <C> <C> <C> <C>
+400 886 - 2,158 - 70.8 2.40%
+300 1,438 - 1,607 - 52.8 3.82
+200 2,008 - 1,037 - 34.1 5.25
+100 2,573 - 471 - 15.5 6.61
0 3,045 0 0 7.71
-100 3,413 368 12.1 8.53
-200 3,567 522 17.1 8.86
-300 3,666 621 20.4 9.04
-400 3,988 943 31.0 9.72
</TABLE>
- -------------------
(1) Calculated as the estimated NPV divided by present value of total assets.
Computations of prospective effects of hypothetical interest rate
changes are based on numerous assumptions, including relative levels of market
interest rates, prepayments and deposit run-offs and should not be relied upon
as indicative of actual results. Certain shortcomings are inherent in such
computations. Although certain assets and liabilities may have similar
maturities or periods of repricing, they may react at different times and in
different degrees to changes in market rates of interest. The interest rates on
certain types of assets and liabilities may fluctuate in advance of changes in
market interest rates, while rates on other types of assets and liabilities may
lag behind changes in market interest rates. In the event of a change in
interest rates, prepayments and early withdrawal levels could deviate
significantly from those assumed in making the calculations set forth above.
Additionally, an increased credit risk may result as many borrowers may be
unable to service their debt in the event of an interest rate increase.
Our board of directors reviews our asset and liability policies on an
annual basis. The board of directors meets quarterly to review interest rate
risk and trends, as well as liquidity and capital ratios and requirements.
Management administers the policies and determinations of the board of directors
with respect to our asset and liability goals and strategies. We expect that our
asset and liability policies and strategies will continue as described so long
as competitive and regulatory conditions in the financial institution industry
and market interest rates continue as they have in recent years.
37
<PAGE>
Financial Condition
Total assets increased $1.07 million or 2.8% to $38.7 million at March
31, 1998 from $37.6 million at September 30, 1997. The increase was primarily
attributable to a $1.9 million increase in our loans receivable and a $1.4
million increase in interest-bearing deposits, partially offset by a decrease in
securities held-to-maturity of $998,000 as well as a decrease in mortgage-backed
and related securities held-to-maturity of $476,000. Our total liabilities
increased $930,000 or 2.6%, to $36.5 million at March 31, 1998 from $35.5
million at September 30, 1997. The increase was primarily attributable to a
$891,000 increase in deposits. Deposits increased primarily due to increased
marketing efforts through greater advertising. Total assets increased $3.3
million or 9.3% to $37.6 million at September 30, 1997, as compared to $34.4
million at September 30, 1996. This increase was primarily due to a $3.1 million
or 13.5% increase in loans receivable, net, and a $1.2 million increase in cash
and due from banks, partially offset by a $1.6 million decrease in securities
held-to-maturity. The increase in loans receivable was due to greater marketing
and increased demand in our primary market area. The decrease in securities
held-to-maturity was a result of maturing instruments.
Total liabilities increased $3.0 million or 9.4% to $35.5 million at
September 30, 1997 as compared to $32.5 million at September 30, 1996. This
increase was due to an increase in deposits of $5.6 million or 19.0% at
September 30, 1997, partially offset by a $2.4 million decrease in FHLB
advances. We had no FHLB advances at September 30, 1997 as our borrowings were
repaid during 1997 using funds provided by the increase in deposits.
Retained earnings increased $137,000 to $2.2 million or 5.7% of total
assets at March 31, 1998, as compared to $2.1 million or 5.5% of total assets at
September 30, 1997 and $1.9 million or 5.5% of total assets at September 30,
1996. The increases in retained earnings are primarily attributable to net
income.
38
<PAGE>
Average Balance Sheet
The following table sets forth a summary of average balances of assets
and liabilities as well as average yield and rate information. Average balances
are based upon month-end balances, however, we do not believe the use of
month-end balances differs significantly from an average based upon daily
balances. There have been no tax equivalent adjustments made to yields.
<TABLE>
<CAPTION>
For the Six Months Ended (5)
---------------------------------------------------------------------------------
March 31, 1998 March 31, 1997
---------------------------------------- --------------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
------- -------- ------------ ------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable(1)............. $27,392 $1,107 8.08% $23,935 $ 977 8.16%
Mortgage-backed securities...... 2,896 91 6.28 2,683 81 6.03
Investment securities(2)........ 3,442 96 5.50 5,197 152 5.85
Other interest-earning assets... 1,944 39 4.01 2,150 53 4.91
------ ------ ---- ------ ----- ----
Total interest-earning assets 35,674 1,333 7.47 33,965 1,263 7.43
---- ----
Noninterest-earning assets........ 2,154 -- 2,417 --
------ ------ ------ ------
Total assets................. $37,828 1,333 $36,382 1,263
====== ----- ====== -----
Interest-bearing liabilities:
NOW Accounts.................... $4,225 $ 49 2.32 $3,808 $ 44 2.31
Savings accounts................ 6,651 83 2.50 5,790 75 2.59
Money market accounts........... 2,357 30 2.55 2,292 25 2.18
Certificates of deposit......... 19,526 515 5.27 18,874 482 5.11
Other liabilities............... -- -- -- 2,187 62 5.67
---------- ------- ---- ------- ---- ----
Total interest-bearing liabilities 32,759 677 4.13 32,951 688 4.18
---- ----
Noninterest-bearing liabilities... 2,884 1,507
------ ------
Total liabilities............ 35,643 34,458
------ ------
Retained earnings................. 2,185 -- 1,924 --
------ ------- ------ ----
Total liabilities and
retained earnings.......... $37,828 $36,382
====== ======
Net interest income............... $ 656 $575
===== ===
Interest rate spread(3)........... 3.34% 3.25%
===== =====
Net yield on
interest-earning assets(4)...... 3.68% 3.39%
===== =====
Ratio of average interest-earning
assets to average interest-
bearing liabilities............. 108.90% 103.08%
====== ======
</TABLE>
<TABLE>
<CAPTION>
Year Ended September 30, At March 31,
------------------------------------------------------------------------- --------------------
1997 1996 1998
---------------------------------- ------------------------------------ --------------------
Average Average Average
Average Yield/ Average Yield/ Actual Yield/
Balance Interest Cost Balance Interest Cost Balance Cost
------- -------- ---------- ------- -------- ---------- ------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable(1)............. $24,832 $2,034 8.19% $21,636 $1,778 8.22% $28,280 7.81%
Mortgage-backed securities...... 2,962 177 5.97 2,940 174 5.92 2,540 6.18
Investment securities(2)........ 4,645 318 6.85 5,531 364 6.57 2,886 5.64
Other interest-earning assets... 2,559 106 4.13 1,537 53 3.45 2,712 5.25
------ ------ ---- ------ ------ ---- ----- ----
Total interest-earning assets 34,998 2,635 7.53 31,644 2,369 7.49 36,418 7.33
---- ---- ----
Noninterest-earning assets........ 2,333 -- 2,234 -- 2,267
------ ------ ------- ------ ------
Total assets................. $37,331 $2,635 $33,878 $2,369 $38,685
====== ===== ====== ===== ======
Interest-bearing liabilities:
NOW Accounts.................... $ 3,830 $ 86 2.24 $3,708 $ 74 1.99 $ 4,516 1.75
Savings accounts................ 6,187 152 2.46 5,568 167 3.01 7,007 2.50
Money market accounts........... 2,283 60 2.62 2,746 59 2.15 2,540 2.62
Certificates of deposit......... 19,530 1,031 5.28 18,019 887 4.92 19,475 5.40
Other liabilities............... 1,302 80 6.14 738 35 4.78 -- --
------ ------ ---- ------ ----- ---- ------ -----
Total interest-bearing liabilit 33,132 1,409 4.25 30,779 1,222 3.97 33,538 4.09
---- ---- ----
Noninterest-bearing liabilities... 2,225 1,134 2,922
------ ------ ------
Total liabilities............ 35,357 31,913 36,460
------ ------ ------
Retained earnings................. 1,974 -- 1,965 -- 2,225
------ ------ ------ ----- ------
Total liabilities and
retained earnings.......... $37,331 $1,409 $33,878 $38,685
====== ===== ====== ======
Net interest income............... $1,226 $1,147
===== =====
Interest rate spread(3)........... 3.28% 3.52% 3.24%
==== ==== ====
Net yield on
interest-earning assets(4)...... 3.50% 3.62% 3.56%
==== ==== ====
Ratio of average interest-earning
assets to average interest-
bearing liabilities............. 105.63% 102.81% 108.59%
====== ====== ======
</TABLE>
- -------------------------
(1) Average balances include non-accrual loans.
(2) Includes interest-bearing deposits in other financial institutions.
(3) Interest-rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities.
(4) Net yield on interest-earning assets represents net interest income as a
percentage of average interest-earning assets.
(5) Annualized (where appropriate) for purposes of comparability with year-end
data.
39
<PAGE>
The table below sets forth certain information regarding changes in our
interest income and interest expense for the periods indicated. For each
category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (i) changes in volume
(changes in average volume multiplied by old rate); (ii) changes in rates
(changes in rate multiplied by old average volume); (iii) changes in rate-volume
(changes in rate multiplied by the change in average volume).
<TABLE>
<CAPTION>
Six Months Ended March 31, Year Ended September 30,
1998 vs. 1997 1997 vs. 1996
--------------------------------- --------------------------------
Increase (Decrease) Increase (Decrease)
Due to Due to
--------------------------------- --------------------------------
Rate/ Rate/
Volume Rate Volume Net Volume Rate Volume Net
------- ------ ------ ------ ------ ------ ------ -----
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income:
Loans receivable ............ $ 141 $ (10) $ (1) $ 130 $ 263 $ (6) $ (1) $ 256
Mortgage-backed securities .. 7 3 -- 10 2 1 -- 3
Investment securities ....... (51) (7) 2 (56) (59) 16 (3) (46)
Other interest-earning assets (5) (10) 1 (14) 36 10 7 (53)
----- ----- ----- ----- ----- ----- ----- -----
Total interest income ...... $ 92 $ (24) $ 2 $ 70 $ 242 $ 21 $ 3 $ 266
===== ===== ===== ===== ===== ===== ===== =====
Interest expense:
NOW accounts ................ $ 5 $ -- $ -- $ 5 $ 3 $ 9 $ -- $ 12
Savings account ............. 11 (3) -- 8 19 (31) (3) (15)
Money market accounts ....... 1 4 -- 5 (10) 13 (2) 1
Certificates of deposit ..... 17 15 1 33 74 65 5 144
Other liabilities ........... -- -- (62) (62) 27 10 8 $ 45
----- ----- ----- ----- ----- ----- ----- -----
Total interest expense
$ 34 $ 16 $ (61) (11) 113 $ 66 $ 8 $ 187
===== ===== ===== ===== ===== ===== ===== =====
Change in net interest income $ 58 $ (40) $ 63 $ 81 $ 129 $ (45) $ (5) $ 79
===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
40
<PAGE>
Results of Operations for the Six Months Ended March 31, 1998 and 1997
Net Income. Our net income increased $52,000 for the six months ended
March 31, 1998, to $114,000 from $62,000 for the six months ended March 31,
1997. This increase was primarily attributable to an $81,000 increase in our net
interest income, a $53,000 increase in our noninterest income and an $11,000
decrease in interest expense, partially offset by a $55,000 increase in our
provision for loan losses, an increase in noninterest expense of $11,000 and an
increase in income taxes of $16,000.
Net Interest Income. Net interest income is the most significant
component of our income from operations. Net interest income is the difference
between interest we receive on our interest-earning assets, primarily loans,
investment and mortgage-backed securities and interest we pay on our
interest-bearing liabilities, primarily deposits. Net interest income depends on
the volume of and rates earned on interest-earning assets and the volume of and
rates paid on interest-bearing liabilities.
Our net interest income increased $81,000, or 15.15%, to $656,000 for
the six months ended March 31, 1998, as compared to the same period in 1997. The
increase was primarily due to the growth in our average interest-earning assets
to $35.7 million in 1998 from $34.0 million in 1997 and growth in our interest
rate spread to 3.34% in 1998 compared to 3.25% in 1997.
The increase in our average interest-earning assets of $1.7 million
primarily reflects increases of $3.5 million in our balance of average loans,
partially offset by a decrease of $2.0 million in investment securities and
other assets. The increase in our interest-earning assets was funded by the
increase in deposits.
Our interest rate spread and net yield on interest-earning assets
increased for the six months ended March 31, 1998 compared to the same period in
1997 which was primarily due to an increase in average yield on our
interest-earning assets of 7.47% in 1998 compared to 7.43% in 1997, partially
offset by a decrease in our average yield on interest-bearing deposits of 4.13%
in 1998 compared to 4.18% in 1997. The increase in our average yield on
interest-earning assets was due to increased lending activity.
The decrease in our average interest-bearing liabilities of $192,000
reflects increases of $417,000 in our average interest-bearing demand deposits
and $1.6 million in average savings and certificates of deposit and a decrease
of $2.2 million in average FHLB borrowings. The decrease in our average FHLB
borrowings is primarily due to the increase in deposits.
Provision for Loan Losses. Our provision for loan losses was $59,000
for the six months ended March 31, 1998, as compared to $4,000 for the same
period in 1997. The increase in the provision in the six months ended March 31,
1998 was the result of management's assessment of its loan portfolio and its
inherent risks. In particular, we increased the amount of our commercial and
consumer loans during 1998, which loans have greater credit risk and we expect
to increase this type of lending in the future.
Historically, we have emphasized our loss experience over other factors
in establishing the provision for loan losses. We review the allowance for loan
losses in relation to (i) our past loan loss experience, (ii) known and inherent
risks in our portfolio, (iii) adverse situations that may affect the borrower's
ability to repay, (iv) the estimated value of any underlying collateral, and (v)
current economic conditions. Management believes the allowance for loan losses
is at a level that is adequate to provide for estimated losses. However, there
can be no assurance that further additions will not be
41
<PAGE>
made to the allowance and that such losses will not exceed the estimated amount.
See "Business of Peoples Savings Bank -- Nonperforming and Problem Assets --
Allowance for Loan Losses."
Noninterest Income. Our noninterest income increased $53,000 or 67.3%
from $79,000 for the six months ended March 31, 1997 to $133,000 for the same
period in 1998. This increase in our noninterest income was due to the
collection of a $54,000 deficiency judgment, partially offset by a decrease in
fees and other service charges of $1,000.
Noninterest Expense. Our noninterest expense increased $11,000 or 2.0%
from $566,000 for the six months ended March 31, 1997 to $578,000 for the same
period in 1998. The increase in our noninterest expense was due to a $6,000
increase in our occupancy and equipment expense and a $13,000 increase in other
noninterest expense, partially offset by decreases of $1,000 in our compensation
and benefits and $7,000 in our federal insurance premiums. The decrease in our
federal deposit insurance premiums was due to a reduction in the rate charged
for deposit insurance.
As a result of the conversion, our noninterest expense may increase due
to costs associated with our employee stock ownership plan, restricted stock
plan, if implemented, and the costs of being a public company. However, we
expect any such increase to be offset by increased interest income resulting
from investment of the proceeds from the conversion.
Income Tax Expense. Our income tax expense increased $16,000 from
$22,000 in 1997 to $38,000 in 1998. This increase in income tax expense is due
to the increase in our pretax income of $68,000 from $84,000 in 1997 to $152,000
in 1998. Our effective tax rate was 25.07% and 26.24% for the six months ended
March 31, 1998 and 1997, respectively.
Results of Operations for the Years Ended September 30, 1997 and 1996
Net Income. Our net income increased $212,000 for the year ended
September 30, 1997, to $192,000 from a loss of $20,000 for the year ended
September 30, 1996. This increase was primarily attributable to a $79,000
increase in our net interest income, a $50,000 increase in our noninterest
income and a $182,000 decrease in our noninterest expense, partially offset by a
$103,000 increase in our income tax expense due to the increase in income before
taxes. In 1996, we were required to pay a one-time assessment to the FDIC in the
amount of $192,000 to recapitalize the SAIF.
Net Interest Income. Our net interest income increased $79,000, or
6.9%, to $1.2 million for the year ended September 30, 1997, as compared to the
same period in 1996. The increase was primarily due to the growth in our average
interest-earning assets to $35.0 million in 1997 from $31.6 million in 1996,
partially offset by a decrease in our interest rate spread to 3.28% in 1997
compared to 3.52% in 1996.
The increase in our average interest-earning assets of $3.4 million
reflects increases of $3.2 million in our balance of average loans and $1.0
million in our other interest-earning assets, partially offset by a decrease of
$886,000 in our investment securities. The increase in our interest-earning
assets was funded by the increase of $2.4 million in average interest-bearing
liabilities.
Our interest rate spread and net yield on interest-earning assets
decreased for the year ended September 30, 1997 compared to the same period in
1996 primarily due to an increase in our average cost on interest-bearing
liabilities to 4.25% in 1997 compared to 3.97% in 1996. The increase in our
average cost on interest-bearing liabilities was due to an increase in
borrowings of $564,000 and an increase in our average cost of deposits of 0.28%.
42
<PAGE>
The increase in our average interest-bearing liabilities of $2.4
million reflects increases of $1.5 million in our average certificates of
deposit, $619,000 in average savings accounts and $122,000 in average NOW
accounts.
Provision for Loan Losses. Our provision for loan losses was $8,000 in
1997 as compared to $13,000 in 1996. The decrease in the provision in 1997 was
the result of management's review of the adequacy of the allowance for loan
losses.
Noninterest Income. Our noninterest income increased $50,000 or 45.3%
from $111,000 in 1996 to $161,000 in 1997. This increase in our noninterest
income was due to increases of $38,000 in our deposit account fees and service
charges, $8,000 in income from real estate owned and $5,000 in increased gain on
sales of available-for-sale securities, partially offset by a $1,000 increase in
our loss on sale of assets. Deposit account fees increased during 1997 due to a
higher number of accounts.
Noninterest Expense. Our noninterest expense decreased $182,000 or
14.1% from $1.3 million in 1996 to $1.1 million in 1997. The decrease in our
noninterest expense was due to a $235,000 decrease in our federal deposit
insurance premiums and assessments, offset by increases of $32,000 in our
compensation and benefits and $24,000 in our other noninterest expense accounts
which was partially attributable to increases in the processing costs related to
the growth in the number of transaction accounts. The decrease in our federal
deposit insurance premiums was due to a $192,000 one-time special assessment
levied in 1996 to recapitalize the SAIF, which did not recur in 1997. Following
the one-time special assessment, the FDIC insurance premium rates decreased from
0.230% to 0.063%, resulting in lower noninterest expense.
Income Tax Expense. Our income tax expense increased $103,000 from a
credit of $22,000 in 1996 to $81,000 in 1997. This increase in income tax
expense is due to the increase in our pretax income from a loss of $42,000 in
1996 to income of $273,000 in 1997. Our effective tax rate was 29.8% for the
year ended September 30, 1997.
Liquidity and Capital Resources
We are required to maintain minimum levels of liquid assets as defined
by OTS regulations. This requirement, which varies from time to time depending
upon economic conditions and deposit flows, is based upon a percentage of our
deposits and short-term borrowings. The required ratio currently is 4.0% and our
regulatory liquidity ratio average was 11.14%, 11.63% and 12.86% at March 31,
1998, September 30, 1997 and 1996, respectively.
Our primary sources of funds are deposits, repayment of loans and
mortgage-backed securities, maturities of investment securities and
interest-bearing deposits with other banks, advances from the FHLB of New York,
and funds provided from operations. While scheduled repayments of loans and
mortgage-backed securities and maturities of investment securities are
predictable sources of funds, deposit flows, and loan prepayments are greatly
influenced by the general level of interest rates, economic conditions and
competition. We use our liquidity resources principally to fund existing and
future loan commitments, maturing certificates of deposit and demand deposit
withdrawals, to invest in other interest-earning assets, to maintain liquidity,
and meet operating expenses.
Net cash provided by our operating activities (the cash effects of
transactions that enter into our determination of net income e.g., non-cash
items, amortization and depreciation, provision for loan losses) for the six
months ended March 31, 1998 was $131,000, an increase of $206,000, as compared
43
<PAGE>
to the same period in 1997. The increase in 1998 was primarily due to a $52,000
increase in our net income, an increase in our income taxes payable of $36,000,
an increase in our prepaid expenses, and cash used to reduce accrued
liabilities. Net cash provided by our operating activities year for the ended
September 30, 1997 was $169,000 as compared to $42,000 for the year ended
September 30, 1996. The increase in 1997 was primarily due to a $212,000
increase in our net income, reduced by payments on other liabilities and taxes.
Net cash used by our investing activities (i.e., cash receipts,
primarily from our investment securities and mortgage-backed securities
portfolios and our loan portfolio) for the six months ended March 31, 1998,
totalled $1.8 million, a decrease of $2.3 million. This decrease was primarily
attributable to loan originations and investments in interest-bearing deposits.
For the year ended September 30, 1997 net cash used by investing activities
totalled $2.2 million, a decrease of $400,000 from September 30, 1996. The
decrease was primarily attributable to funding net loan growth of $3.1 million
in 1997 as compared to $2.6 million in 1996. The decrease was also affected by
paydowns and maturities of investment and mortgage-backed securities of $1.2
million in 1997 as compared to $4.5 million in 1996.
Net cash used in our financing activities (i.e., cash receipts
primarily from net increases in deposits and net decreases in FHLB advances) for
the six months ended March 31, 1998, totalled $900,000, a decrease of $3.5
million as compared to the six months ended March 31, 1997. For the year ended
September 30, 1997 net cash used in financing activities totalled $3.2 million,
an increase of $2.5 million from September 30, 1996. The increase was primarily
attributable to repayment of FHLB advances.
Approximately $11.3 million of our time deposits mature within the next
12 months. We expect such deposits to be renewed at market rates. In addition to
this source of continuing funding, we have a $9.4 million line of credit
available through the FHLB of New York.
Year 2000 Issues
The approaching millennium is causing organizations of all types to
review their computer systems for the ability to properly accommodate the year
2000. When computer systems were first developed, two digits were used to
designate the year in date calculations and "19" was assumed for the century. As
a result, there is significant concern about the integrity of date sensitive
calculations when the calendar rolls over to January 1, 2000. An older system
could interpret 01/01/00 as January 1, 1900 potentially causing major problems
calculating interest, payment, delinquency or maturity dates.
Our internal Year 2000 Working Committee, comprised of senior
management was formed to address the potential risk that Year 2000 poses for us.
This committee reports to the board of directors. In June 1997, the committee
compiled a Year 2000 Action Plan to promote awareness of pertinent issues and to
provide for evaluation and testing of our electronic systems, programs and
processes. This report was submitted to the OTS for review in August 1997 and
was deemed acceptable by the OTS in October 1997.
Accurate data processing is essential to our operations and a lack of
accurate processing by our vendor or by us could have a significant adverse
impact on our financial condition and results of operations. We have been
assured by our data processing service bureau that their computer services will
function properly on and after January 1, 2000. Our data processing service
bureau has advised us that as of April 30, 1998 their system is Year 2000
compliant. Additional testing of the system is scheduled for August 1998. If by
the end of this year it appears that our primary data processing service bureau
44
<PAGE>
will be unable to resolve this problem in a timely manner, then we will seek a
secondary data processing service provider to complete the task. If we are
unable to do this, we will identify those steps necessary to minimize the
negative impact the computer problems could have on us. Our computer hardware
does not require specific upgrades in order to meet Year 2000 requirements.
Recent Accounting Pronouncements
FASB Statement on Reporting Comprehensive Income. In June 1997, the
Financial Accounting Standards Board ("FASB") issued Statement of Financial
Accounting Standards ("SFAS") No. 130. SFAS No. 130 will require us to classify
items of other comprehensive income by their nature in the financial statements
and display the accumulated balance of other comprehensive income separately
from retained earnings and additional paid-in capital in the equity section of
the statement of equity. SFAS No. 130 is effective for fiscal years beginning
after December 15, 1997. The adoption of this standard is not expected to have a
material impact on our consolidated financial statements.
FASB Statement on Earnings Per Share. In March 1997, FASB issued SFAS
No. 128. The Statement establishes standards for computing and presenting
earnings per share and applies to entities with publicly held common stock or
potential common stock. This Statement supersedes the standards for computing
earnings per share previously found in Accounting Principles Board ("APB")
Opinion No. 15, Earnings per Share ("EPS"), and makes them comparable to
international EPS standards. It replaces the presentation of primary EPS with a
presentation of basic EPS. It also requires dual presentation of basic and
diluted EPS on the face of the income statement for all entities with complex
capital structures and requires a reconciliation of the numerator and the
denominator of the basic EPS computation to the numerator and denominator of the
diluted EPS computation. Basic EPS excludes dilution and is computed by dividing
income available to common stockholders by the weighted-average number of common
shares outstanding for the period. Diluted EPS reflects the potential dilution
that could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the earnings of the entity. Diluted EPS is computed
similarly to fully diluted EPS pursuant to APB Opinion No. 15. This statement
supersedes Opinion 15 and AICPA Accounting Interpretation 1-102 of Opinion 15.
This statement is effective for financial statements issued for periods ending
after December 15, 1997, including interim periods. We will adopt SFAS No. 128
for all our financial statements prepared after the conversion.
FASB Statement on Disclosure of Information about Capital Structure. In
February 1997, the FASB issued SFAS No. 129. The Statement incorporates the
disclosure requirements of APB Opinion No. 15, Earnings per Share, and makes
them applicable to all public and nonpublic entities that have issued securities
addressed by the Statement. APB Opinion No. 15 requires disclosure of
descriptive information about securities that is not necessarily related to the
computation of earnings per share. This statement continues the previous
requirements to disclose certain information about an entity's capital structure
found in APB Opinions No. 10, Omnibus Opinion- 1966, and No. 15, Earnings per
Share, and FASB Statement No. 47, Disclosure of Long-Term Obligations, for
entities that were subject to the requirements of those standards. This
Statement eliminates the exemption of nonpublic entities from certain disclosure
requirements of Opinion 15 as provided by FASB Statement No. 21, Suspension of
the Reporting of Earnings per Share and Segment Information by Nonpublic
Enterprises. It supersedes specific disclosure requirements of Opinions 10 and
15 and Statement 47 and consolidates them in this Statement for ease of
retrieval and for greater visibility to nonpublic entities. The Statement is
effective for financial statements for periods ending after December 15, 1997.
We will adopt SFAS No. 129 for all our financial statements prepared after the
conversion.
45
<PAGE>
FASB Statement on Disclosures about Segments of an Enterprise and
Related Information. In June 1997, the FASB issued SFAS No. 131. SFAS No. 131
establishes standards for the way public enterprises are to report information
about operating segments in annual financial statements and requires those
enterprises to report selected information about operating segments in interim
financial reports. SFAS No. 131 is effective for financial statements for
periods beginning after December 15, 1997. The adoption of this standard is not
expected to have a material impact on our consolidated financial statements.
FASB Statement on Employers' Disclosures about Pensions and Other
Postretirement Benefits. In February 1998, the FASB issued SFAS No. 132. SFAS
No. 132 revises employers' disclosures about pension and other postretirement
benefit plans. SFAS No. 132 does not change the measurement or recognition of
those plans and is effective for fiscal years beginning after December 15, 1997.
The adoption of this standard is not expected to have a material impact on our
consolidated financial statements.
BUSINESS OF FARNSWORTH BANCORP, INC.
The Company is not an operating company and has not engaged in any
significant business to date. It was formed in May 1998 as a New
Jersey-chartered corporation to be the holding company for Peoples Savings Bank.
The holding company structure will facilitate: (i) diversification into
non-banking activities, (ii) acquisitions of other financial institutions, such
as savings institutions, (iii) expansion within existing and into new market
areas, and (iv) stock repurchases without adverse tax consequences. There are,
however, no present plans regarding diversification, acquisitions, expansion or
repurchases.
Since the Company will own only one savings association, it generally
will not be restricted in the types of business activities in which it may
engage, provided that we retain a specified amount of our assets in
housing-related investments. The Company initially will not conduct any active
business and does not intend to employ any persons other than officers but will
utilize our support staff from time to time.
The office of the Company is located at 789 Farnsworth Avenue,
Bordentown, New Jersey. The telephone number is (609) 298-0723.
BUSINESS OF PEOPLES SAVINGS BANK
Peoples Savings Bank was originally chartered in 1880 as The Bordentown
Building and Loan Association. In 1965 we merged with Peoples Building and Loan
Association and became Bordentown Peoples Savings and Loan Association. We
acquired Florence Township Savings and Loan Association and Beverly Building and
Loan Association in 1985 and 1989, respectively. The Beverly branch was
subsequently closed in 1994. In 1995 we changed our name to Peoples Savings
Bank, SLA. In 1996 we converted from a state-chartered mutual savings bank to a
federally-chartered mutual savings bank, and concurrently changed our name to
Peoples Savings Bank.
We are a community and customer-oriented federal mutual savings bank
with two branch offices located in Burlington County. We provide financial
services to individuals, families and small businesses. Historically, we have
emphasized residential mortgage lending, primarily originating one- to
four-family mortgage loans. At March 31, 1998, we had total assets of $38.7
million, deposits of $36.1 million, and retained earnings of $2.3 million.
46
<PAGE>
The principal sources of funds for our activities are deposits,
payments on loans and borrowings from the FHLB of New York. Funds are used
principally for the origination of fixed-rate mortgage loans, but also
occasionally for the origination of adjustable-rate mortgage loans, secured by
first mortgages on one- to four-family residences located in our local
communities, and for the purchase of investment securities. One- to four-family
mortgage loans totalled $21.6 million, or 75% of our total loans receivable
portfolio at March 31, 1998. Our principal sources of revenue are interest
received on loans and on investments and our principal expense is interest paid
on deposits and borrowings.
Market Area
Our main office is located in Bordentown and our branch office is
located in Florence, approximately seven miles from the main office. Both
offices are in northern Burlington County, our primary market area. Both
Bordentown and Florence are densely populated, urban areas. Burlington County
has a stable economy with a low unemployment rate, and a diversified economic
base of light industry and retail businesses. Bordentown, however has higher
household and per capita income levels than both Florence and the New Jersey
state averages. Unlike Florence, the population in Bordentown is projected to
increase.
Lending Activities
Most of our loans are mortgage loans which are secured by one- to
four-family residences. We also make construction loans on one- to four-family
and commercial properties, commercial real estate and business loans, as well as
consumer loans. Almost all of the loans we originate have rates of interest
which are fixed ("fixed-rate").
The following table sets forth information concerning the types of
loans held by us.
<TABLE>
<CAPTION>
At March 31, At September 30,
----------------------------- --------------------------------------------------------------
1998 1997 1996
----------------------------- ----------------------------- ------------------------------
$ % $ % $ %
--- --- --- --- --- ---
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Type of Loans:
Residential ....................... $21,579 74.8% $20,220 73.5% $19,107 77.6%
Construction....................... 2,332 8.1 2,842 10.3 1,840 7.5
Commercial real estate............. 1,234 4.3 1,144 4.2 541 2.2
Commercial business................ 176 .6 18 .1 54 0.2
Consumer loans:
Home equity.................... 3,223 11.2 3,004 10.9 2,870 11.7
Savings account loans.......... 231 0.8 246 0.9 197 0.8
Automobile loans............... 34 0.1 -- -- -- --
Other.......................... 52 0.1 50 0.1 -- --
------ ----- ------ ----- ------ -----
28,861 100.0% 27,524 100.0% 24,609 100.0%
------ ===== ------ ===== ------ =====
Less:
Loans in process................. 293 895 1,137
Deferred loan origination
fees and costs................. 163 154 153
Allowance for loan losses........ 125 66 58
------ ------ ------
Total loans, net................... $28,280 $26,409 $23,261
====== ====== ======
</TABLE>
47
<PAGE>
The following table sets forth the estimated maturity of our loan
portfolio at March 31, 1998. The table does not include the effects of possible
prepayments or scheduled principal repayments. For the six months ended March
31, 1998 and the year ended September 30, 1997, prepayments and scheduled
principal repayments on loans totalled $2.80 million and $1.19 million,
respectively. All mortgage loans are shown as maturing based on the date of the
last payment required by the loan agreement.
<TABLE>
<CAPTION>
1-4 Family Commercial Commercial
Mortgage Construction Real Estate Business Consumer Total
Loans Loans Loans Loans Loans Loans
----- ----- ----- ----- ----- -----
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Amounts due:
Within 1 year................ $ 2,022 $2,332 $ 251 $161 $ 240 $ 5,006
Over 1 to 3 years............ 491 -- -- -- 344 835
Over 3 to 5 years............ 1,472 -- -- 15 521 2,008
Over 5 to 10 years........... 1,333 -- 507 -- 731 2,571
Over 10 to 20 years.......... 5,730 -- 80 -- 1,704 7,514
Over 20 years................ 10,531 -- 396 -- -- 10,927
------ ----- ----- ---- ------- ------
Total amount due........... 21,579 2,332 1,234 176 3,540 28,861
------ ----- ----- ---- ------- ------
------
Less:
Allowance for loan losses.... 119 -- -- 2 4 125
Loans in process............. -- 293 -- -- -- 293
Deferred loan fees........... 163 -- -- -- -- 163
------ ----- ----- ---- ------- -------
Loans receivable, net $21,297 $2,039 $1,234 $174 $3,536 $28,280
====== ===== ===== === ===== ======
</TABLE>
The following table sets forth the dollar amount of all loans due after
March 31, 1999, which have pre-determined interest rates and which have floating
or adjustable interest rates.
<TABLE>
<CAPTION>
Floating or
Fixed-rates Adjustable-rates Total
----------- ---------------- -----
(In thousands)
<S> <C> <C> <C>
Residential......................................... $19,370 $187 $19,557
Construction........................................ -- -- --
Commercial real estate.............................. 983 -- 983
Commercial business................................. 15 -- 15
Construction........................................ -- -- --
Consumer............................................ 2,976 324 3,300
------ --- ------
Total............................................. $23,344 $511 $23,855
====== === ======
</TABLE>
48
<PAGE>
The following information contains information concerning changes in
the amount of loans held by us.
<TABLE>
<CAPTION>
For the Six
Months Ended For the Years Ended
March 31, September 30,
-------------------------- ---------------------------------
1998 1997 1996
-------------------------- ----------------- -------------
<S> <C> <C> <C>
Total gross loans receivable
at beginning of period............................ $27,524 $24,609 $20,626
Loans originated:
Residential....................................... 2,633 3,708 4,326
Construction...................................... 412 2,315 1,876
Commercial real estate............................ 55 656 --
Commercial business............................... 165 20 --
Consumer.......................................... 459 1,905 1,217
Total loans originated.......................... 3,724 8,604 7,419
Loan principal repayments........................... 2,387 5,689 3,428
Loans charged off................................... -- -- 8
Net loan activity................................... 1,337 2,915 3,983
------ ------ ------
Total gross loans receivable
at end of period.............................. $28,861 $27,524 $24,609
====== ====== ======
</TABLE>
Mortgage Loans:
One- to Four-Family Residential Loans. Our primary lending activity
consists of originating one- to four-family fixed-rate residential mortgage
loans which are owner-occupied and secured by property located in our market
area. We generally originate fixed-rate loans with terms, conditions and
documentation which would permit us to either sell the loans to Federal National
Mortgage Association ("FNMA" or Federal Home Loan Mortgage Corporation
("FHLMC"), in the secondary market or retain them in our portfolio, depending on
the yield on the loan and on our asset/liability management objectives. While we
have in the past originated adjustable-rate mortgage ("ARM") loans, this has not
been a significant aspect of our business. At March 31, 1998, we had only one
ARM loan.
Our fixed-rate loans generally have terms from 10 to 30 years with
principal and interest payments calculated using up to a 30-year amortization
period. Some of these fixed-rate loans are balloon loans with terms of 5 or 7
years, with principal and interest payments again calculated using up to a 30-
year amortization period. The maximum loan-to-value ratio on residential
mortgage loans is 95%. Loans originated with a loan-to-value ratio in excess of
80% require private mortgage insurance.
Our mortgage loans generally include due-on-sale clauses. This gives us
the right to deem the loan immediately due and payable in the event the borrower
transfers ownership of the property securing the mortgage loan without our
consent.
49
<PAGE>
Commercial Real Estate Loans. Our commercial real estate loans are
secured by office buildings, retail establishments and other commercial
properties. These loans generally do not exceed $500,000, nor do they have terms
greater than 15 years. If a borrower should require a longer amortization
period, the loan will be an adjustable or balloon mortgage, adjusting or
maturing in five years.
Commercial real estate lending entails significant additional risks
compared to residential property lending. These loans typically involve large
loan balances to single borrowers or groups of related borrowers. The repayment
of these loans typically is dependent on the successful operation of the real
estate project securing the loan. For commercial real estate these risks can be
significantly affected by supply and demand conditions in the market for office
retail space and may also be subject to adverse conditions in the economy. To
minimize these risks, we generally limit this type of lending to our market area
and to borrowers who are otherwise well known to us and generally limit the loan
to value ratio to 75%.
Construction Loans:
We make residential construction loans/permanent loans on one- to
four-family residential property to the individuals who will be the owners and
occupants upon completion of construction. We also make commercial construction
loans to local business. Our three current projects are a motel conversion loan
(in the amount of $500,000), a shopping center (in the amount $350,000) and a
medical facility (in the amount of $504,000).
Interest payments only are required during construction and these are
to be paid from the borrower's own funds. These loans are made at 1% to 2% above
prime and have terms of up to 12 months. The maximum loan-to-value ratio is 75%
of the appraised value of the completed project. Upon completion of construction
the loan converts to a permanent loan and regular principal and interest
payments commence. We do not finance any speculative projects.
Construction lending is generally considered to involve a higher degree
of credit risk than long-term financing of residential properties. Our risk of
loss on a construction loan is dependent largely upon the accuracy of the
initial estimate of the property's value at completion of construction and the
estimated cost of construction. If the estimate of construction cost and the
marketability of the property upon completion of the project prove to be
inaccurate, we may be compelled to advance additional funds to complete the
construction. Furthermore, if the final value of the completed property is less
than the estimated amount, the value of the property might not be sufficient to
assure the repayment of the loan.
Commercial Business Loans:
Our commercial loans generally constitute lines of credit to local
businesses. These loans are primarily secured by real estate and generally do
not have terms greater than one year.
We are also a Small Business Administration ("SBA") authorized lender.
A variety of types of small business administration loans are available.
Currently there are no SBA loans in the portfolio.
Consumer Loans:
We offer non-collateralized personal loans in the amounts of up to
$5,000 in order to provide a wider range of financial services to our customers
and because these loans provide higher interest rates and shorter terms (12 to
36 months) than many of our other loans. Consumer loans totalled $3.5 million
50
<PAGE>
or 12.27% of our total loans at March 31, 1998. We also offer loans with savings
pledged as additional security. Our consumer loans consist of home equity,
savings account, automobile and personal loans.
The home equity loans we originate are secured by one- to four-family
residences. These loans have terms of three to 15 years, generally will not
exceed $100,000 and have loan-to-value ratios of 80%. Home equity lines of
credit have interest rates of prime plus 1.5% and are subject to a 75%
loan-to-value ratio, which includes a first mortgage balance.
Consumer loans may entail greater risk than residential mortgage loans,
particularly in the case of consumer loans that are unsecured or secured by
assets that depreciate rapidly. Repossessed collateral for a defaulted consumer
loan may not be sufficient for repayment of the outstanding loan, and the
remaining deficiency may not be collectible.
Loan Approval Authority and Underwriting. Our loan committee, which is
comprised of President Pelehaty, Vice President Alessi, our Senior Loan Officer
and our Loan Servicing Manager, approves one- to four-family mortgage loans up
to the conforming loan limit of $227,150, and all other loans up to $50,000.
Loan requests above this amount must be approved by the full board of directors,
which meets twice monthly, or by the Executive Committee composed of four
non-employee directors and President Pelehaty.
Upon receipt of a completed loan application from a prospective
borrower, a credit report is ordered. Income and certain other information is
verified. If necessary, additional financial information may be requested. If
applicable, an appraisal or other estimate of value of the real estate intended
to be used as security for the proposed loan is obtained. Appraisals are
processed by independent fee appraisers. Private mortgage insurance will also be
required in certain instances.
Construction/permanent loans are made on individual properties. Funds
advanced during the construction phase are held in a loans-in-process account
and disbursed at various stages of completion, following physical inspection of
the construction by a loan officer or appraiser.
Either title insurance or a title opinion is generally required on all
real estate loans. Borrowers also must obtain fire and casualty insurance. Flood
insurance is also required on loans secured by property which is located in a
flood zone.
Loan Commitments. Written commitments are issued to prospective
borrowers within 45 days of the loan application. The prospective borrower has
10 days from this commitment date within which to accept the loan. The loan must
close within 45 days of this acceptance date. The interest rate at which the
loan will be made is fixed for 60 days from the date of the loan application. At
March 31, 1998, commitments to cover originations of mortgage loans totalled
$1,705,000. We believe that virtually all of our commitments will be funded.
Loans to One Borrower. The maximum amount of loans which we may make to
any one borrower may not exceed the greater of $500,000 or 15% of our unimpaired
capital and unimpaired surplus. We may lend an additional 10% of our unimpaired
capital and unimpaired surplus if the loan is fully secured by readily
marketable collateral. Our maximum loan to one borrower limit was $500,000 at
March 31, 1998. One loan exceeded this limit at March 31, 1998. This loan is
being refinanced so that it is within the required limit. At March 31, 1998, the
aggregate loans of our five largest borrowers have outstanding balances of
between $345,000 and $504,000.
51
<PAGE>
Nonperforming and Problem Assets
Loan Delinquencies. When a mortgage loan becomes 15 days past due, a
notice of nonpayment is sent to the borrower. After the loan becomes 30 days
past due, another notice of nonpayment, accompanied by a personal letter, is
sent to the borrower. If the loan continues in a delinquent status for 90 days
past due and no repayment plan is in effect, foreclosure proceedings will be
initiated. The borrower will be notified when foreclosure is commenced.
Loans are reviewed on a monthly basis and are placed on a non-accrual
status when, in our opinion, the collection of additional interest is doubtful.
Interest accrued and unpaid at the time a loan is placed on nonaccrual status is
charged against interest income. Subsequent interest payments, if any, are
either applied to the outstanding principal balance or recorded as interest
income, depending on the assessment of the ultimate collectibility of the loan.
Nonperforming Assets. The following table sets forth information
regarding nonaccrual loans and real estate owned, as of the dates indicated. For
the six months ended March 31, 1998, interest income that would have been
recorded on loans accounted for on a non-accrual basis under the original terms
of such loans was $8,000.
<TABLE>
<CAPTION>
At March 31, At September 30,
------------ -------------------------
1998 1997 1996
------------ ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C>
Loans accounted for on a non-accrual basis:
Mortgage loans:
Permanent loans secured by 1-4 family units........ $ 127 $ 199 $ --
All other mortgage loans........................... 74 -- --
------- ------- ------
Total................................................ $ 201 $ 199 $ --
======= ======= ======
Accruing loans which are contractually past due 90 days or more:
Mortgage loans:
Permanent loans secured by 1-4 family units........ $ 65 $ -- $ 9
Total................................................ 65 -- 9
Total non-accrual and accrual loans.................. 266 199 9
Real estate owned.................................... -- -- 298
Total nonperforming assets........................... 266 199 307
Total non-accrual and accrual loans to net loans..... 0.94% 0.75% 0.04%
Total non-accrual and accrual loans to total
assets.............................................. 0.69% 0.53% 0.03%
Total non performing assets to total assets.......... 0.69% 0.53% 0.89%
</TABLE>
Classified Assets. OTS regulations provide for a classification system
for problem assets of savings associations which covers all problem assets.
Under this classification system, problem assets of savings institutions such as
ours are classified as "substandard," "doubtful," or "loss." An asset is
considered substandard if it is inadequately protected by the current net worth
and paying capacity of the borrower or of the collateral pledged, if any.
Substandard assets include those characterized by the "distinct possibility"
that the savings institution will sustain "some loss" if the deficiencies are
not corrected. Assets classified as doubtful have all of the weaknesses inherent
in those classified substandard, with the added characteristic that the
weaknesses present make "collection or liquidation in
52
<PAGE>
full," on the basis of currently existing facts, conditions, and values, "highly
questionable and improbable." Assets classified as loss are those considered
"uncollectible" and of such little value that their continuance as assets
without the establishment of a specific loss reserve is not warranted. Assets
may be designated "special mention" because of potential weakness that do not
currently warrant classification in one of the aforementioned categories.
When a savings association classifies problem assets as either
substandard or doubtful, it may establish general allowances for loan losses in
an amount deemed prudent by management. General allowances represent loss
allowances which have been established to recognize the inherent risk associated
with lending activities, but which, unlike specific allowances, have not been
allocated to particular problem assets. When a savings association classifies
problem assets as loss, it is required either to establish a specific allowance
for losses equal to 100% of that portion of the asset so classified or to charge
off such amount. A savings association's determination as to the classification
of its assets and the amount of its valuation allowances is subject to review by
the OTS, which may order the establishment of additional general or specific
loss allowances. A portion of general loss allowances established to cover
possible losses related to assets classified as substandard or doubtful may be
included in determining a savings association's regulatory capital. Specific
valuation allowances for loan losses generally do not qualify as regulatory
capital. At March 31, 1998, we had $453,000 of loans classified as special
mention, and no loans classified as substandard, doubtful or loss.
Allowances for Loan Losses. A provision for loan losses is charged to
operations based on management's evaluation of the losses that may be incurred
in our loan portfolio. The evaluation, including a review of all loans on which
full collectibility of interest and principal may not be reasonably assured,
considers: (i) our past loan loss experience, (ii) known and inherent risks in
our portfolio, (iii) adverse situations that may affect the borrower's ability
to repay, (iv) the estimated value of any underlying collateral, and (v) current
economic conditions.
We monitor our allowance for loan losses and make additions to the
allowance as economic conditions dictate. Although we maintain our allowance for
loan losses at a level that we consider adequate for the inherent risk of loss
in our loan portfolio, future losses could exceed estimated amounts and
additional provisions for loan losses could be required. In addition, our
determination as to the amount of allowance for loan losses is subject to review
by the OTS, as part of its examination process. After a review of the
information available, the OTS might require the establishment of an additional
allowance.
53
<PAGE>
The following table illustrates the allocation of the allowance for
loan losses for each category of loans. The allocation of the allowance to each
category is not necessarily indicative of future loss in any particular category
and does not restrict our use of the allowance to absorb losses in other loan
categories.
<TABLE>
<CAPTION>
At March 31, At September 30,
----------------------- --------------------------------------------------------
1998 1997 1996
----------------------- ----------------------------- ----------------------
Percent of Percent of Percent
Loans in Loans in of Loans
Each Each in Each
Category Category Category
to Total to Total to Total
Amount Loans Amount Loans Amount Loans
------ ----- ------ ----- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Residential............................ $ 119 95.20% $ 66 100.00% $ 58 100.00%
Construction........................... -- -- -- -- -- --
Commercial............................. 2 1.60 -- -- -- --
Consumer .............................. 4 3.20 -- -- -- --
------ ------ ----- ----- ----- -----
Total allowance for
loan losses...................... $ 125 100.00% $ 66 100.00% $ 58 100.00%
===== ====== ===== ====== ===== ======
</TABLE>
The following table sets forth information with respect to our
allowance for loan losses at the dates and for the periods indicated:
<TABLE>
<CAPTION>
At March 31, At September 30,
------------ --------------------------
1998 1997 1996
------------ -------- -------
(Dollars in thousands)
<S> <C> <C> <C>
Total loans outstanding (1).................... $28,405 $26,409 $23,261
====== ====== ======
Average loans outstanding...................... $27,392 $24,832 $21,636
====== ====== ======
Allowance balances (at beginning of period).... 66 58 46
Provision:
Residential.................................. 53 8 20
Commercial real estate....................... 2 -- --
Consumer..................................... 4 -- --
Net recoveries................................. -- -- 8
------- ------ ------
Allowance balance (at end of period)........... $ 125 $ 66 $ 58
====== ====== ======
Allowance for loan losses as a percent of
total loans outstanding...................... 0.44% 0.25% 0.25%
Net loans charged off as a percent of average
loans outstanding............................ --% --% --%
</TABLE>
- --------------
(1) Excludes allowance for loan losses
54
<PAGE>
Investment Activities
Investment Securities. We are required under federal regulations to
maintain a minimum amount of liquid assets which may be invested in specified
short-term securities and certain other investments. See "Regulation -- Savings
Institution Regulation -- Federal Home Loan Bank System" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources." The level of liquid assets varies depending
upon several factors, including: (i) the yields on investment alternatives, (ii)
our judgment as to the attractiveness of the yields then available in relation
to other opportunities, (iii) expectation of future yield levels, (iv)
asset/liability management, and (v) our projections as to the short-term demand
for funds to be used in loan origination and other activities. We classify our
investment securities as "available-for-sale" or "held-to-maturity" in
accordance with SFAS No. 115. At March 31, 1998, our investment portfolio policy
permitted investments in instruments such as: (i) U.S. Treasury obligations,
(ii) U.S. federal agency or federally sponsored agency obligations, (iii) local
municipal obligations, (iv) mortgage-backed securities, (v) banker's
acceptances, (vi) certificates of deposit, (vii) federal funds, including FHLB
overnight and term deposits (up to six months), (viii) collateralized automobile
receivables, and (ix) investment grade corporate bonds, commercial paper and
mortgage derivative products. See "-- Mortgage-Backed Securities." The board of
directors may authorize additional investments.
Our investment securities "available-for-sale" and "held-to-maturity"
portfolios at March 31, 1998, did not contain securities of any issuer with an
aggregate book value in excess of 10% of our equity, excluding those issued by
the United States government agencies.
Mortgage-Backed Securities. To supplement lending activities, we have
invested in residential mortgage-backed securities. Mortgage-backed securities
can serve as collateral for borrowings and, through repayments, as a source of
liquidity. Mortgage-backed securities represent a participation interest in a
pool of single-family or other type of mortgages. Principal and interest
payments are passed from the mortgage originators, through intermediaries
(generally quasi-governmental agencies) that pool and repackage the
participation interests in the form of securities, to investors such as us. The
quasi-governmental agencies guarantee the payment of principal and interest to
investors and include the FHLMC, the Government National Mortgage Association
("GNMA") and FNMA.
At March 31, 1998, all of our mortgage-backed securities portfolio was
classified as "held-to- maturity", and totalled $2.5 million. Each security was
issued by GNMA, FHLMC or FNMA. Expected maturities will differ from contractual
maturities due to scheduled repayments and because borrowers may have the right
to call or prepay obligations with or without prepayment penalties.
Mortgage-backed securities typically are issued with stated principal
amounts. The securities are backed by pools of mortgages that have loans with
interest rates that are within a set range and have varying maturities. The
underlying pool of mortgages can be composed of either fixed-rate or
adjustable-rate mortgage loans. Mortgage-backed securities are generally
referred to as mortgage participation certificates or pass-through certificates.
The interest rate risk characteristics of the underlying pool of mortgages
(i.e., fixed-rate or adjustable-rate) and the prepayment risk, are passed on to
the certificate holder. The life of a mortgage-backed pass-through security is
equal to the life of the underlying mortgages. Mortgage-backed securities issued
by FHLMC and GNMA make up a majority of the pass-through certificates market.
55
<PAGE>
Investment Portfolio. The following table sets forth the carrying value
of our investments. See Notes 2, and 3 to our financial statements elsewhere in
this document.
<TABLE>
<CAPTION>
At March 31, At September 30,
------------ -----------------------
1998 1997 1996
------------ --------- ---------
(In thousands)
<S> <C> <C> <C>
Investments securities held-to-maturity:
U.S. agency securities.................................. $2,659 $3,656 $5,302
State and local government.............................. 99 99 99
----- ----- -----
Total investment securities held-to-maturity......... 2,758 3,755 5,401
Investment securities available-for-sale:
FHLMC Stock............................................. 128 96 66
--- ---- ----
Total investment securities available-for-sale...... 128 96 66
Interest-bearing deposits................................. 2,450 1,082 361
FHLB stock................................................ 261 234 234
Mortgage-backed securities held-to-maturity............... 2,540 3,016 2,781
----- ----- -----
Total investments................................... $8,137 $8,183 $8,843
===== ===== =====
</TABLE>
56
<PAGE>
The following table sets forth certain information regarding scheduled
maturities, carrying values, approximate fair values, and weighted average
yields for our investments at March 31, 1998 by contractual maturity. The
following table does not take into consideration the effects of scheduled
repayments or the effects of possible prepayments.
<TABLE>
<CAPTION>
One Year or Less One to Five Years Five to Ten Years More than Ten Years Total Investment Securities
--------------------- ------------------ ------------------- ------------------- ------------------------------
Weighted Weighted Weighted Weighted Weighted
Carrying Average Carrying Average Carrying Average Carrying Average Carrying Average Market
Value Yield Value Yield Value Yield Value Yield Value Yield Value
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. agency
securities......... $ -- --% $ 748 7.52% $1,412 3.91% $ 499 7.30% $ 2,659 5.56% $ 2,612
State and
local government... -- -- -- -- -- -- 99 6.05 99 6.05 112
FHLMC stock.......... 128 7.03 -- -- -- -- -- -- 128 7.03 128
Interest-bearing
deposits........... 2,450 5.05 -- -- -- -- -- -- 2,450 5.05 2,450
FHLB stock........... -- -- -- -- -- -- 261 7.15 261 7.15 261
Mortgage-backed
securities......... 461 5.40 197 5.50 406 6.00 1,476 7.11 2,540 6.18 2,540
------ ----- ----- ------ ----- ----- ----- ----- ------ ----- ------
Total investments.. $3,039 5.19% $ 945 7.10% $1,818 4.37% $ 2,335 7.11% $ 8,137 5.68% $ 8,103
===== ===== ===== ====== ===== ===== ====== ===== ====== ===== ======
</TABLE>
57
<PAGE>
Sources of Funds
Deposits are our major external source of funds for lending and other
investment purposes. Funds are also derived from the receipt of payments on
loans and prepayment of loans and maturities of investment securities and
mortgage-backed securities and borrowings and operations. Scheduled loan
principal repayments are a relatively stable source of funds, while deposit
inflows and outflows and loan prepayments are significantly influenced by
general interest rates and market conditions.
Deposits. Consumer and commercial deposits are attracted principally
from within our primary market area through the offering of a selection of
deposit instruments including checking accounts, regular savings accounts, money
market accounts, and term certificate accounts. IRA accounts are also offered.
Deposit account terms vary according to the minimum balance required, the time
period the funds must remain on deposit, and the interest rate.
The interest rates paid by us on deposits are set weekly at the
direction of our senior management. Interest rates are determined based on our
liquidity requirements, interest rates paid by our competitors, and our growth
goals and applicable regulatory restrictions and requirements.
Regular savings, money market demand and NOW accounts constituted $14.1
million, or 39.1%, of our deposit portfolio at March 31, 1998. Certificates of
deposit constituted $19.5 million or 54.0% of the deposit portfolio of which
$1.7 million or 4.7% of the deposit portfolio were certificates of deposit with
balances of $100,000 or more. Noninterest-bearing accounts totalled $2.9 million
or 8.3% of our deposits at March 31, 1998. Such deposits are offered at
negotiated rates. As of March 31, 1998, we had no brokered deposits.
At March 31, 1998, our deposits were represented by the various types
of savings programs described below.
<TABLE>
<CAPTION>
Percentage
Interest Minimum of Total
Category Term Rate(1) Balance Amount Balance Deposits
- -------- ---- ------- -------------- ------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
Transactions and Savings:
NOW accounts None 1.75% $ N/A $ 4,516 12.51%
Passbook accounts None 2.50 N/A 7,007 19.42
Money market demand accounts None 2.62 2,500 2,540 7.04
Noninterest-bearing accounts None -- N/A 2,551 7.07
------- ------
Total non-certificates 16,614 46.04
Certificates of Deposit:
Fixed Term, Fixed-rate 91 Days 4.43 2,500 926 2.57
Fixed Term, Fixed-rate 4-6 Months 4.70 2,500 2,834 7.85
Fixed Term, Fixed-rate 7-12 Months 5.36 N/A 7,381 20.45
Fixed Term, Fixed-rate 13-24 Months 5.64 N/A 4,685 12.98
Fixed Term, Fixed-rate 25-36 Months 5.69 N/A 945 2.62
Fixed Term, Fixed-rate 36-48 Months 5.83 N/A 515 1.43
Fixed Term, Fixed-rate 49-120 Months 5.83 N/A 2,188 6.06
------ ------
Total certificates of deposit 19,474 53.96
------ ------
Total deposits $36,088 100.00%
====== ======
</TABLE>
- ---------------------
(1) Current interest rate as of March 31, 1998.
58
<PAGE>
The following table sets forth our time deposits classified by interest
rate at the dates indicated.
March 31, At September 30,
----------- -------------------------------
1998 1997 1996
----------- ----------- --------
(In thousands)
Interest Rate
3.00 or less......... $ -- $ -- $ 3
3.01 - 4.00%......... 529 660 1,263
4.01 - 5.01%......... 3,658 2,278 4,636
5.01 - 6.00%......... 14,369 15,905 9,642
6.01 - 7.00%......... 918 1,027 1,472
------ ------ ------
Total............ $19,474 $19,870 $17,016
====== ====== ======
The following table sets forth the amount and maturities of time
deposits in the Bank classified by interest rate as of the dates indicated.
<TABLE>
<CAPTION>
Amount Due
One to Two to Over
Interest Rate One Year Two Years Three Years Three Years Total
- ------------- ------------ --------- --------------- ------------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
3.01-4.00%................... $ 110 $ 196 $ 223 $ -- $ 529
4.01-5.00.................... 3,601 47 10 -- 3,658
5.01-6.00%................... 5,226 6,237 2,168 738 14,369
6.01-7.00%................... 107 198 213 400 918
------ ------ ------ ------ -------
Total................... $ 9,044 $ 6,678 $2,614 $1,138 $19,474
====== ====== ===== ===== ======
</TABLE>
The following table indicates the amount of our certificates of
deposits of $100,000 or more by time remaining until maturity as of March 31,
1998.
Certificates
Maturity Period of Deposits
--------------- -----------
(In thousands)
Within three months............... $ 543
Three through six months.......... 104
Six through twelve months......... 501
Over twelve months................ 547
-----
$1,695
=====
59
<PAGE>
Borrowings. Advances (borrowings) may be obtained from the FHLB of New
York to supplement our supply of lendable funds. Advances from the FHLB of New
York are typically secured by a pledge of our stock in the FHLB of New York, a
portion of our first mortgage loans and other assets. Each FHLB credit program
has its own interest rate (which may be fixed or adjustable) and range of
maturities. We may borrow up to $9.4 million from the FHLB of New York. If the
need arises, we may also access the Federal Reserve Bank discount window to
supplement our supply of lendable funds and to meet deposit withdrawal
requirements. At March 31, 1998 and September 30, 1997, we had no borrowings or
advances outstanding from the FHLB of New York. We had no other borrowings
outstanding.
The following table sets forth the terms of our short-term FHLB
advances.
At or for the periods ended
-----------------------------------------
March 31, 1998 September 30, 1997
-------------- ------------------
(Dollars in thousands)
Balance at period end.............. $ -- $ --
Average balance outstanding 1,302
during the period................ --
Maximum amount outstanding
at any month-end during
the period....................... -- 3,585
Weighted average interest rate
during the period................ --% 6.14%
Competition
Competition for deposits comes from other insured financial
institutions such as commercial banks, thrift institutions, credit unions,
finance companies, and multi-state regional banks in our market areas.
Competition for funds also includes a number of insurance products sold by local
agents and investment products such as mutual funds and other securities sold by
local and regional brokers. Loan competition varies depending upon market
conditions and comes from commercial banks, thrift institutions, credit unions
and mortgage bankers.
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Properties
We operate from our main office and one branch office.
<TABLE>
<CAPTION>
Year Net Book Value Of
Leased or Year Leased Lease Real Property at
Location Owned or Acquired Expires March 31, 1998
---------------- ----- ------------ ------- ---------------
<S> <C> <C> <C> <C>
MAIN OFFICE:
789 Farnsworth Avenue
Bordentown, New Jersey
08505 Own 1975 N/A $1,266,995
BRANCH OFFICE:
4 Broad Street
Florence, New Jersey
08518 Own 1985 N/A $ 94,215
</TABLE>
Personnel
At March 31, 1998 we had 14 full-time employees and one part-time
employee. None of our employees are represented by a collective bargaining
group. We believe that our relationship with our employees is good.
Legal Proceedings
We are, from time to time, a party to legal proceedings arising in the
ordinary course of our business, including legal proceedings to enforce our
rights against borrowers. We are not a party to any legal proceedings which are
expected to have a material adverse effect on our financial statements.
REGULATION
Set forth below is a brief description of certain laws which relate to
us. The description is not complete and is qualified in its entirety by
references to applicable laws and regulation.
Holding Company Regulation
General. The Company will be required to register and file reports with
the OTS and will be subject to regulation and examination by the OTS. In
addition, the OTS will have enforcement authority over the Company and any
non-savings institution subsidiaries. This will permit the OTS to restrict or
prohibit activities that it determines to be a serious risk to us. This
regulation is intended primarily for the protection of our depositors and not
for the benefit of you, as stockholders of the Company.
QTL Test. Since the Company will only own one savings institution, it
will be able to diversify its operations into activities not related to banking,
but only so long as we satisfy the QTL test. If the Company controls more than
one savings institution, it would lose the ability to diversify its operations
into nonbanking related activities, unless such other savings institutions each
also qualify as a QTL or were acquired in a supervised acquisition. See "--
Savings Institution Regulation -- Qualified Thrift Lender Test."
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Restrictions on Acquisitions. The Company must obtain approval from the
OTS before acquiring control of any other SAIF-insured savings institution. No
person may acquire control of a federally insured savings institution without
providing at least 60 days written notice to the OTS and giving the OTS an
opportunity to disapprove the proposed acquisition.
Savings Institution Regulation
General. As a federally chartered, SAIF-insured savings institution, we
are subject to extensive regulation by the OTS and the FDIC. Our lending
activities and other investments must comply with various federal and state
statutory and regulatory requirements. We are also subject to certain reserve
requirements promulgated by the Board of Governors of the Federal Reserve System
("Federal Reserve").
The OTS, in conjunction with the FDIC, regularly examines us and
prepares reports for the consideration of our board of directors on any
deficiencies that the OTS finds in our operations. Our relationship with our
depositors and borrowers is also regulated to a great extent by federal and
state law, especially in such matters as the ownership of savings accounts and
the form and content of our mortgage documents.
We must file reports with the OTS and the FDIC concerning our
activities and financial condition, in addition to obtaining regulatory
approvals prior to entering into certain transactions such as mergers with or
acquisitions of other financial institutions. This regulation and supervision
establishes a comprehensive framework of activities in which an institution can
engage and is intended primarily for the protection of the SAIF and depositors.
The regulatory structure also gives the regulatory authorities extensive
discretion in connection with their supervisory and enforcement activities and
examination policies, including policies with respect to the classification of
assets and the establishment of adequate loan loss reserves for regulatory
purposes. Any change in regulations, whether by the OTS, the FDIC or any other
government agency, could have a material adverse impact on our operations.
Insurance of Deposit Accounts. The FDIC is authorized to establish
separate annual assessment rates for deposit insurance for members of the BIF
and the SAIF. The FDIC may increase assessment rates for either fund if
necessary to restore the fund's ratio of reserves to insured deposits to its
target level within a reasonable time and may decrease such assessment rates if
such target level has been met. The FDIC has established a risk-based assessment
system for both SAIF and BIF members. Under this system, assessments are set
within a range, based on the risk the institution poses to its deposit insurance
fund. This risk level is determined based on the institution's capital level and
the FDIC's level of supervisory concern about the institution.
Because a significant portion of the assessments paid into the SAIF by
savings institutions were used to pay the cost of prior savings institution
failures, the reserves of the SAIF were below the level required by law. The BIF
had, however, met its required reserve level during the third calendar quarter
of 1995. As a result, deposit insurance premiums for deposits insured by the BIF
were substantially less than premiums for deposits such as ours which are
insured by the SAIF. Legislation to capitalize the SAIF and to eliminate the
significant premium disparity between the BIF and the SAIF became effective
September 30, 1996. The recapitalization plan provided for a special assessment
equal to $.657 per $100 of SAIF deposits held at March 31, 1995, in order to
increase SAIF reserves to the level required by law. Certain BIF institutions
holding SAIF-insured deposits were required to pay a lower special assessment.
Based on our deposits at March 31, 1995, we paid a pre-tax special assessment of
$192,000.
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The recapitalization plan also provides that the cost of prior failures
which were funded through the issuance of Fico Bonds (bonds issued to fund the
cost of savings institution failures in prior years) will be shared by members
of both the SAIF and the BIF. This will increase BIF assessments for healthy
banks to approximately $.013 per $100 of deposits in 1997. SAIF assessments for
healthy savings institutions in 1997 will be approximately $.064 per $100 in
deposits and may be reduced, but not below the level set for healthy BIF
institutions.
The FDIC has lowered the rates on assessments paid to the SAIF and
widened the spread of those rates. The FDIC's action established a base
assessment schedule for the SAIF with rates ranging from 4 to 31 basis points,
and an adjusted assessment schedule that reduces these rates by 4 basis points.
As a result, the effective SAIF rates range from 0 to 27 to basis points as of
October 1, 1996. In addition, the FDIC's final rule prescribed a special interim
schedule of rates ranging from 18 to 27 basis points for SAIF-member savings
institutions for the last quarter of calendar 1996, to reflect the assessments
paid to the Financing Corp. (Fico Bonds). Finally, the FDIC's action established
a procedure for making limited adjustments to the base assessment rates by
rulemaking without notice and comment, for both the SAIF and the BIF.
The recapitalization plan also provides for the merger of the SAIF and
BIF effective January 1, 1999, assuming there are no savings institutions under
federal law. Under separate proposed legislation, Congress is considering the
elimination of the federal thrift charter and elimination of the separate
federal regulation of thrifts. As a result, we might have to convert to a
different financial institution charter and be regulated under federal law as a
bank, including being subject to the more restrictive activity limitations
imposed on national banks. We cannot predict the impact of our conversion to, or
regulation as, a bank until the legislation requiring such change is enacted.
Regulatory Capital Requirements. OTS capital regulations require
savings institutions to meet three capital standards: (1) tangible capital equal
to 1.5% of total adjusted assets, (2) core capital equal to at least 3% of total
adjusted assets, and (3) risk-based capital equal to 8% of total risk-weighted
assets. Our capital ratios are set forth under "Historical and Pro Forma Capital
Compliance."
Tangible capital is defined as core capital less all intangible assets
(including supervisory goodwill), less certain mortgage servicing rights and
less certain investments. Core capital is defined as common stockholders' equity
(including retained earnings), noncumulative perpetual preferred stock and
minority interests in the equity accounts of consolidated subsidiaries, certain
nonwithdrawable accounts and pledged deposits of mutual savings associations and
qualifying supervisory goodwill, less nonqualifying intangible assets, certain
mortgage servicing rights and certain investments.
The risk-based capital standard for savings institutions requires the
maintenance of total risk-based capital (which is defined as core capital plus
supplementary capital) of 8% of risk-weighted assets. The components of
supplementary capital include, among other items, cumulative perpetual preferred
stock, perpetual subordinated debt, mandatory convertible subordinated debt,
intermediate-term preferred stock, and the portion of the allowance for loan
losses not designated for specific loan losses. The portion of the allowance for
loan and lease losses includable in supplementary capital is limited to a
maximum of 1.25% of risk-weighted assets. Overall, supplementary capital is
limited to 100% of core capital. A savings association must calculate its
risk-weighted assets by multiplying each asset and off-balance sheet item by
various risk factors as determined by the OTS, which range from 0% for cash to
100% for delinquent loans, property acquired through foreclosure, commercial
loans, and other assets.
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The risk-based capital standards of the OTS generally require savings
institutions with more than a "normal" level of interest rate risk to maintain
additional total capital. An institution's interest rate risk will be measured
in terms of the sensitivity of its "net portfolio value" to changes in interest
rates. Net portfolio value is defined, generally, as the present value of
expected cash inflows from existing assets and off-balance sheet contracts less
the present value of expected cash outflows from existing liabilities. A savings
institution will be considered to have a "normal" level of interest rate risk
exposure if the decline in its net portfolio value after an immediate 200 basis
point increase or decrease in market interest rates (whichever results in the
greater decline) is less than two percent of the current estimated economic
value of its assets. An institution with a greater than normal interest rate
risk will be required to deduct from total capital, for purposes of calculating
its risk-based capital requirement, an amount (the "interest rate risk
component") equal to one-half the difference between the institution's measured
interest rate risk and the normal level of interest rate risk, multiplied by the
economic value of its total assets.
The OTS calculates the sensitivity of an institution's net portfolio
value with data submitted by the institution and the interest rate risk
measurement model adopted by the OTS. The amount of the interest rate risk
component, if any, to be deducted from an institution's total capital will be
based on the institution's Thrift Financial Report filed two quarters earlier.
Savings institutions with less than $300 million in assets and a risk-based
capital ratio above 12% are generally exempt from filing the interest rate risk
schedule with their Thrift Financial Reports. However, the OTS may require any
exempt institution that it determines may have a high level of interest rate
risk exposure to file such schedule on a quarterly basis and may be subject to
an additional capital requirement based upon its level of interest rate risk as
compared to its peers. Although the rule is not yet in effect, due to our net
size and risk-based capital level, we are exempt from the interest rate risk
component.
Dividend and Other Capital Distribution Limitations. OTS regulations
require us to give the OTS 30 days advance notice of any proposed declaration of
dividends to the Company, and the OTS has the authority under its supervisory
powers to prohibit the payment of dividends by us to the Company. In addition,
we may not declare or pay a cash dividend on our capital stock if the effect
would be to reduce our regulatory capital below the amount required for the
liquidation account to be established at the time of the conversion. See "The
Conversion -- Effects of Conversion to Stock Form on Depositors and Borrowers of
Peoples Savings Bank -- Liquidation Account."
OTS regulations impose limitations upon all capital distributions by
savings institutions, such as cash dividends, payments to repurchase or
otherwise acquire its shares, payments to stockholders of another institution in
a cash-out merger, and other distributions charged against capital. The rule
establishes three tiers of institutions based primarily on an institution's
capital level. An institution that exceeds all fully phased-in capital
requirements before and after a proposed capital distribution ("Tier 1
institution") and has not been advised by the OTS that it is in need of more
than the normal supervision can, after prior notice but without the approval of
the OTS, make capital distributions during a calendar year equal to the greater
of (i) 100% of its net income to date during the calendar year plus the amount
that would reduce by one-half its "surplus capital ratio" (the excess capital
over its fully phased-in capital requirements) at the beginning of the calendar
year, or (ii) 75% of its net income over the most recent four quarter period.
Any additional capital distributions require prior regulatory notice. As of
September 30, 1997, we qualified as a Tier 1 institution.
In January 1998, the OTS proposed amendments to its current regulations
with respect to capital distributions by savings associations. Under the
proposed regulation, savings associations that would remain at least adequately
capitalized following the capital distribution, and that meet other specified
requirements, would not be required to file a notice or application for capital
distributions (such as cash dividends) declared below specified amounts. Under
the proposed regulation, savings associations which
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are eligible for expedited treatment under current OTS regulations are not
required to file a notice or an application with the OTS if (i) the savings
association would remain at least adequately capitalized following the capital
distribution and (ii) the amount of the capital distribution does not exceed an
amount equal to the savings association's net income for that year to date, plus
the savings association's retained net income for the previous two years. Thus,
under the proposed regulation, only undistributed net income for the prior two
years may be distributed in addition to the current year's undistributed net
income without the filing of an application with the OTS. Savings associations
which do not qualify for expedited treatment or which desire to make a capital
distribution in excess of the specified amount, must file an application with,
and obtain the approval of, the OTS prior to making the capital distribution.
Under certain other circumstances, savings associations will be required to file
a notice with OTS prior to making the capital distribution. All savings
associations which are subsidiaries of holding companies, as we will be
following the Conversion, will be required to file a notice with the OTS prior
to making a capital distribution. The OTS proposed limitations on capital
distributions are similar to the limitations imposed upon national banks. The
Association is unable to predict whether or when the proposed regulation will
become effective.
In the event our capital falls below our fully phased-in requirement or
the OTS notifies us that we are in need of more than normal supervision, we
would become a Tier 2 or Tier 3 institution and as a result, our ability to make
capital distributions could be restricted. Tier 2 institutions, which are
institutions that before and after the proposed distribution meet their current
minimum capital requirements, may only make capital distributions of up to 75 %
of net income over the most recent four quarter period. Tier 3 institutions,
which are institutions that do not meet current minimum capital requirements and
propose to make any capital distribution, and Tier 2 institutions that propose
to make a capital distribution in excess of the noted safe harbor level, must
obtain OTS approval prior to making such distribution. In addition, the OTS
could prohibit a proposed capital distribution by any institution, which would
otherwise be permitted by the regulation, if the OTS determines that such
distribution would constitute an unsafe or unsound practice. The OTS has
proposed rules relaxing certain approval and notice requirements for
well-capitalized institutions.
A savings institution is prohibited from making a capital distribution
if, after making the distribution, the savings institution would be
undercapitalized (i.e., not meet any one of its minimum regulatory capital
requirements). Further, a savings institution cannot distribute regulatory
capital that is needed for its liquidation account.
Qualified Thrift Lender Test. Savings institutions must meet a
qualified thrift lender ("QTL") test. If we maintain an appropriate level of
qualified thrift investments ("QTIs") (primarily residential mortgages and
related investments, including certain mortgage-related securities) and
otherwise qualify as a QTL, we will continue to enjoy full borrowing privileges
from the FHLB of New York. The required percentage of QTIs is 65% of portfolio
assets (defined as all assets minus intangible assets, property used by the
institution in conducting its business and liquid assets equal to 10% of total
assets). Certain assets are subject to a percentage limitation of 20% of
portfolio assets. In addition, savings institutions may include shares of stock
of the FHLBs, FNMA, and FHLMC as QTIs. Compliance with the QTL test is
determined on a monthly basis in nine out of every 12 months. As of March 31,
1998, we were in compliance with our QTL requirement with approximately 88.06%
of our assets invested in QTIs.
Transactions With Affiliates. Generally, restrictions on transactions
with affiliates require that transactions between a savings institution or its
subsidiaries and its affiliates be on terms as favorable to the savings
institution as comparable transactions with non-affiliates. In addition, certain
of these transactions are restricted to an aggregate percentage of the savings
institution's capital. Collateral in
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specified amounts must usually be provided by affiliates in order to receive
loans from the savings institution. Within certain limits, affiliates are
permitted to receive more favorable loan terms than non-affiliates. Our
affiliates include the Company and any company which would be under common
control with us. In addition, a savings institution may not extend credit to any
affiliate engaged in activities not permissible for a bank holding company or
acquire the securities of any affiliate that is not a subsidiary. The OTS has
the discretion to treat subsidiaries of savings institution as affiliates on a
case-by-case basis.
Liquidity Requirements. All savings institutions are required to
maintain an average daily balance of liquid assets equal to a certain percentage
of the sum of its average daily balance of net withdrawable deposit accounts and
borrowings payable in one year or less. The liquidity requirement may vary from
time to time (between 4% and 10%) depending upon economic conditions and savings
flows of all savings institutions. At March 31, 1998, our required liquid asset
ratio was 4%. Our average liquid asset ratio at March 31, 1998 was 11.14%.
Monetary penalties may be imposed upon institutions for violations of liquidity
requirements.
Federal Home Loan Bank System. We are a member of the FHLB of New York,
which is one of 12 regional FHLBs. Each FHLB serves as a reserve or central bank
for its members within its assigned region. It is funded primarily from funds
deposited by savings institutions and proceeds derived from the sale of
consolidated obligations of the FHLB System. It makes loans to members (i.e.,
advances) in accordance with policies and procedures established by the board of
directors of the FHLB.
As a member, we are required to purchase and maintain stock in the FHLB
of New York in an amount equal to at least 1% of our aggregate unpaid
residential mortgage loans, home purchase contracts or similar obligations at
the beginning of each year. At March 31, 1998, we had $261,300 in FHLB stock, at
cost, which was in compliance with this requirement. The FHLB imposes various
limitations on advances such as limiting the amount of certain types of real
estate related collateral to 30% of a member's capital and limiting total
advances to a member.
The FHLBs are required to provide funds for the resolution of troubled
savings institutions and to contribute to affordable housing programs through
direct loans or interest subsidies on advances targeted for community investment
and low- and moderate-income housing projects. These contributions have
adversely affected the level of FHLB dividends paid and could continue to do so
in the future.
Federal Reserve. The Federal Reserve requires all depository
institutions to maintain non-interest-bearing reserves at specified levels
against their transaction accounts (primarily checking, NOW and Super NOW
checking accounts) and non-personal time deposits. The balances maintained to
meet the reserve requirements imposed by the Federal Reserve may be used to
satisfy the liquidity requirements that are imposed by the OTS. At March 31,
1998, our reserve met the minimum level required by the Federal Reserve.
Savings institutions have authority to borrow from the Federal Reserve
System "discount window," but Federal Reserve System policy generally requires
savings institutions to exhaust all other sources before borrowing from the
Federal Reserve System. We had no borrowings from the Federal Reserve System at
March 31, 1998.
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TAXATION
Federal Taxation
We are subject to the provisions of the Internal Revenue Code of 1986,
as amended (the "Code"), in the same general manner as other corporations.
Generally, thrifts with $500 million of assets or less may still use the
experience method in determining additions to bad debt reserves, which is also
available to small banks. Larger thrifts must use the specific charge off method
regarding bad debts. Any reserve amounts added to our bad debt reserve after
1987 will be recaptured into our taxable income over a six year period beginning
in 1996. A thrift may delay recapturing into income its post-1987 bad debt
reserves for an additional two years if it meets a residential lending test.
This recapture will not have a material impact on us.
Under the experience method, the bad debt deduction may be based on (i)
a six-year moving average of actual losses on qualifying and non-qualifying
loans, or (ii) a fill-up to the institution's base year reserve amount, which is
the tax bad debt reserve determined as of September 30, 1987.
If a savings institution's qualifying assets (generally, loans secured
by residential real estate or deposits, educational loans, cash and certain
government obligations) constitute less than 60% of its total assets, the
institution may not deduct any addition to a bad debt reserve and generally must
include existing reserves in income over a four year period, which is
immediately accruable for financial reporting purposes. As of March 31, 1998, at
least 60% of our assets were qualifying assets as defined in the Code. No
assurance can be given that we will meet the 60% test for subsequent taxable
years.
Earnings appropriated to our bad debt reserve and claimed as a tax
deduction including our supplemental reserves for losses will not be available
for the payment of cash dividends or for distribution to you, our stockholders
(including distributions made on dissolution or liquidation), unless we include
the amount in income. Distributable amounts may be reduced by any amount deemed
necessary to pay the resulting federal income tax. As of September 30, 1997, we
had $241,000 of accumulated earnings, representing our base year tax reserve,
for which federal income taxes have not been provided. If such amount is used
for any purpose other than bad debt losses, including a dividend distribution or
a distribution in liquidation, it will be subject to federal income tax at the
then current rate.
The Code imposes an alternative minimum tax ("AMT") on a corporation's
alternative minimum taxable income ("AMTI") at a rate of 20%. AMTI is increased
by certain preference items, including the excess of the tax bad debt reserve
deduction using the percentage of taxable income method over the deduction that
would have been allowable under the experience method. Only 90% of AMTI can be
offset by net operating loss carryovers of which we currently have none. AMTI is
also adjusted by determining the tax treatment of certain items in a manner that
negates the deferral of income resulting from the regular tax treatment of those
items. Thus, our AMTI is increased by an amount equal to 75 % of the amount by
which our adjusted current earnings exceeds our AMTI (determined without regard
to this adjustment and prior to reduction for net operating losses). In
addition, for taxable years beginning after September 30, 1986 and before
January 1, 1996, an environmental tax of 0.12% of the excess of AMTI (with
certain modifications) over $2 million is imposed on corporations, including us,
whether or not an AMT is paid. For tax years beginning in 1998 a corporation
that has had average annual gross receipts of $5 million or less over its 1995,
1996 and 1997 tax years will be a "small corporation." Once the corporation is
recognized as a small corporation it will be exempt from the AMT for so long as
its average annual gross receipts for the prior 3 year period does not exceed
$7,500,000. The Company will be recognized as a small corporation.
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The Company may exclude from its income 100% of dividends received from
us as a member of the same affiliated group of corporations. A 70% dividends
received deduction generally applies with respect to dividends received from
corporations that are not members of such affiliated group, except that an 80%
dividends received deduction applies if the Company owns more than 20% of the
stock of a corporation paying a dividend.
Our federal income tax returns have not been audited by the IRS during
the past ten years.
State Taxation
The Association files New Jersey income tax returns. For New Jersey
income tax purposes, savings institutions are presently taxed at a rate of up to
3% of net income, which is calculated based on federal taxable income, subject
to certain adjustments.
Our state tax returns have not been audited by the State of New Jersey
during the past ten years.
MANAGEMENT OF FARNSWORTH BANCORP, INC.
Our board of directors consists of the same individuals who serve as
directors of our subsidiary, Peoples Savings Bank. Our certificate of
incorporation and bylaws require that directors be divided into three classes,
as nearly equal in number as possible. Each class of directors serves for a
three-year period, with approximately one-third of the directors elected each
year. Our officers will be elected annually by the board and serve at the
board's discretion. See "Management of Peoples Savings Bank."
MANAGEMENT OF PEOPLES SAVINGS BANK
Directors and Executive Officers
Our board of directors is composed of seven members each of whom serves
for a term of three years, with approximately one-third of the directors elected
each year. Our current charter and bylaws and our proposed stock charter and
bylaws require that directors be divided into three classes, as nearly equal in
number as possible. Our officers are elected annually by our board and serve at
the board's discretion.
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The following table sets forth information with respect to our
directors and executive officers, all of whom will continue to serve in the same
capacities after the conversion.
Age at Current
March 31, Director Term
Name 1998 Position Since Expires(1)
- ---- ---- -------- -------- -------
George G. Aaronson, Jr. 66 Director 1970 1999
Charles E. Adams 82 Director 1985 1998
Herman Gutstein 85 Chairman 1965 1999
G. Edward Koenig, Jr. 56 Director 1981 1999
Edgar N. Peppler 62 Director (Vice 1970 2000
Chairman)
William H. Wainwright, Jr. 67 Director 1986 1998
Gary N. Pelehaty 45 President, CEO 1992 2000
and Director
Charles Alessi 35 Vice President, N/A N/A
CFO, Secretary
and Treasurer
- ------------------
(1) The terms for directors of the Company are the same as those of Peoples
Savings Bank.
The business experience for the past five years of each of the
directors and executive officers is as follows:
George G. Aaronson, Jr. has been a director of the Bank since 1970. He
is employed by Falconer & Bell as a real estate sales agent. Mr. Aaronson is
supervisor of the Burlington County Soil Conservation Committee.
Charles E. Adams has been a director of the Bank since 1985. Mr. Adams
is now retired, but was the Administrator and Secretary of Florence Township
Saving and Loan Association for 20 years. Mr. Adams is on the administrative
board of Florence United Methodist Church, and is treasurer of the Florence
Historical Society.
Herman Gutstein has been a director of the Bank since 1965. He has also
served as chairman of the board since 1992. Mr. Gutstein owns a convenience
store.
G. Edward Koenig, Jr. has, except for a three year hiatus ending in
1993, been a director since 1981. Mr. Koenig is President of E. J. Koenig Inc.,
a fuel service petroleum products company and a heating and air conditioning
equipment sales, installation and service business. Mr. Koenig sits on the
Burlington County Military Affairs Committee Executive Board and served as its
chairman from 1996 to 1997.
Edgar N. Peppler has been a director of the Bank since 1970. He has
served as vice-chairman of the board since 1992. Mr. Peppler is part owner and
President of Peppler Funeral Home, a business
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he has been associated with since 1957. Mr. Peppler is a member of the
Bordentown Chamber of Commerce, a past president of the Bordentown Kiwanis Club,
and a past master of the Masonic Lodge.
William H. Wainwright, Jr. has been a director of the Bank since 1968.
Before retiring in 1995, he was employed for 20 years as a loan officer at the
Farmers Home Administration and the Small Business Administration. Mr.
Wainwright is a member of the Surf City Yacht Club and served as their Commodore
in 1996.
Gary N. Pelehaty has served the Bank as a director since October 1992.
He has also been President and Chief Executive Officer of the Bank since
February of the same year. Mr. Pelehaty is a director of First Nations Financial
Services Company. Active in the local community, Mr. Pelehaty serves on the
boards of directors of Bordentown Rotary, Burlington County Burn Foundation, and
is the finance chairman of Bordentown Veterans' Memorial Foundation. He is also
a former director of Bordentown's Chamber of Commerce and Vice President of the
Burlington/Camden Savings League.
Charles Alessi has been employed by the Bank since 1992 and is
Vice-President and our Chief Financial Officer. He is also Secretary and
Treasurer of the Bank. Mr. Alessi is a member of the Financial Managers Society.
Meetings and Committees of the Board of Directors
The board of directors conducts its business through meetings of the
board and through activities of its committees. During the year ended September
30, 1997, the board of directors held 24 regular meetings and one special
meeting. No director attended fewer than 75% of the total meetings of the board
of directors and committees on which such director served during this time
period.
Director Compensation
Each director is paid monthly. Total aggregate fees paid to the
directors for the year ended September 30, 1997 were $4,800. Since October 1,
1997, each director (including the chairman of the board) has been paid a
monthly fee of $500.
Directors Consultant and Retirement Plan ("DRP"). We intend to
establish a DRP which will provide retirement benefits to our directors based
upon the number of years of service to our board, which must be at least 5
years. If a director agrees to become a consulting director to our board upon
retirement, he or she will receive a monthly payment of $500 for 5 years or
until death, whichever is earlier. Benefits under our DRP will begin upon a
director's retirement. In the event there is a change in control, all directors
will be presumed to have not less than 5 years of service and each director will
receive a lump sum payment equal to the present value of future benefits
payable.
Executive Compensation
Summary Compensation Table. The following table sets forth the cash and
non-cash compensation awarded to or earned by our chief executive officer at
September 30, 1997. No other employee earned in excess of $100,000 for the year
ended September 30, 1997.
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<TABLE>
<CAPTION>
Annual Compensation
------------------------------------------------
Other Annual All Other
Name and Principal Position Salary Bonus Compensation Compensation
- --------------------------- ------ ----- ------------ ------------
<S> <C> <C> <C> <C>
Gary N. Pelehaty
Director, President and CEO $88,150 $ -- $4,800(1) $7,544(2)
</TABLE>
- ------------------
(1) Consists of Board fees.
(2) Consists of 401(k) plan matching contributions and cost of automobile.
Employment Agreement. We have entered into an employment agreement with
our President, Gary N. Pelehaty. Mr. Pelehaty's base salary under the employment
agreement is $90,000. The employment agreement has a term of three years. The
agreement is terminable by us for "just cause" as defined in the agreement. If
we terminate Mr. Pelehaty without just cause, he will be entitled to a
continuation of his salary from the date of termination through the remaining
term of the agreement but in no event for a period of less than twenty-four
months. The employment agreement contains a provision stating that in the event
of the termination of employment in connection with any change in control of us,
Mr. Pelehaty will be paid a lump sum amount equal to 2.99 times his five year
average annual taxable cash compensation. If such payments had been made under
the agreement as of September 30, 1997, such payments would have equaled
approximately $278,000. The aggregate payments that would have been made to Mr.
Pelehaty would be an expense to us, thereby reducing our net income and our
capital by that amount. The agreement may be renewed annually by our board of
directors upon a determination of satisfactory performance within the board's
sole discretion. If Mr. Pelehaty shall become disabled during the term of the
agreement, he shall continue to receive payment of 100% of the base salary for a
period of 12 months and 65% of such base salary for the remaining term of such
agreement. Such payments shall be reduced by any other benefit payments made
under other disability programs in effect for our employees.
Supplemental Executive Retirement Plan. We intend to implement a
supplemental executive retirement plan ("SERP") for the benefit of our
President, Mr. Pelehaty. The SERP will provide Mr. Pelehaty with a supplemental
retirement benefit in addition to benefits under the Bank's 401(k) Plan and the
proposed ESOP. Under the SERP, it is anticipated that an annual contribution
will be made to a reserve equal to approximately 10% of Mr. Pelehaty's
compensation. Upon retirement on or after age 55, Mr. Pelehaty may receive the
value of such reserve account payable in a lump-sum amount or in periodic
payments over a ten year period. The SERP is unfunded. All benefits payable
under the SERP would be paid from our current assets. There are no tax
consequences to either participant or us related to the SERP prior to payment of
benefits. Upon receipt of payment of benefits, the participant will recognize
taxable ordinary income in the amount of such payments received and we will be
entitled to recognize a tax-deductible compensation expense at that time.
Employee Stock Ownership Plan. We have established an employee stock
ownership plan, the ESOP, for the exclusive benefit of participating employees
of ours, to be implemented upon the completion of the conversion. Participating
employees are employees who have completed one year of service with us or our
subsidiary and have attained the age of 21. An application for a letter of
determination as to the tax-qualified status of the ESOP will be submitted to
the IRS. Although no assurances can be given, we expect that the ESOP will
receive a favorable letter of determination from the IRS.
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The ESOP is to be funded by contributions made by us in cash or common
stock. Benefits may be paid either in shares of the common stock or in cash. In
accordance with the Plan, the ESOP may borrow funds with which to acquire up to
8% of the common stock to be issued in the conversion. The ESOP intends to
borrow funds from the Company. The loan is expected to be for a term of ten
years at an annual interest rate equal to the prime rate as published in The
Wall Street Journal. Presently it is anticipated that the ESOP will purchase up
to 8% of the common stock to be issued in the offering (i.e., 33,200 shares,
based on the midpoint of the EVR). The loan will be secured by the shares
purchased and earnings of ESOP assets. Shares purchased with such loan proceeds
will be held in a suspense account for allocation among participants as the loan
is repaid. We anticipate contributing approximately $33,200 annually (based on a
$332,000 purchase) to the ESOP to meet principal obligations under the ESOP
loan, as proposed. It is anticipated that all such contributions will be
tax-deductible. This loan is expected to be fully repaid in approximately 10
years.
Shares sold above the maximum of the EVR (i.e., more than 548,838
shares) may be sold to the ESOP before satisfying remaining unfilled orders of
Eligible Account Holders to fill the ESOP's subscription or the ESOP may
purchase some or all of the shares covered by its subscription after the
conversion in the open market.
Contributions to the ESOP and shares released from the suspense account
will be allocated among participants on the basis of total compensation. All
participants must be employed at least 1,000 hours in a plan year, or have
terminated employment following death, disability or retirement, in order to
receive an allocation. Participant benefits become vested in plan allocations
following five years of service. Employment prior to the adoption of the ESOP
shall be credited for the purposes of vesting. Vesting will be accelerated upon
retirement, death, disability, change in control of the Company, or termination
of the ESOP. Forfeitures will be reallocated to participants on the same basis
as other contributions in the plan year. Benefits may be payable in the form of
a lump sum upon retirement, death, disability or separation from service. Our
contributions to the ESOP are discretionary and may cause a reduction in other
forms of compensation. Therefore, benefits payable under the ESOP cannot be
estimated.
The board of directors has appointed non-employee directors to the ESOP
Committee to administer the ESOP and to serve as the initial ESOP Trustees. The
board of directors or the ESOP Committee may instruct the ESOP Trustees
regarding investments of funds contributed to the ESOP. The ESOP Trustees must
vote all allocated shares held in the ESOP in accordance with the instructions
of the participating employees. Unallocated shares and allocated shares for
which no timely direction is received will be voted by the ESOP Trustees as
directed by the board of directors or the ESOP Committee, subject to the
Trustees' fiduciary duties.
Proposed Future Stock Benefit Plans
Stock Option Plan. The board of directors intends to adopt a stock
option plan (the Option Plan) following the conversion, subject to approval by
the Company's stockholders, at a stockholders' meeting to be held no sooner than
six months after the conversion. The Option Plan would be in compliance with the
OTS regulations in effect. See "-- Restrictions on Stock Benefit Plans." If the
Option Plan is implemented within one year after the conversion, in accordance
with OTS regulations, a number of shares equal to 10% of the aggregate shares of
common stock to be issued in the offering (i.e., 41,500 shares based upon the
sale of 415,000 shares at the midpoint of the EVR) would be reserved for
issuance by the Company upon exercise of stock options to be granted to our
officers, directors and employees from time to time under the Option Plan. The
purpose of the Option Plan would be to provide additional performance and
retention incentives to certain officers, directors and employees by
facilitating their
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purchase of a stock interest in the Company. Under the OTS regulations, the
Option Plan, would provide for a term of 10 years, after which no awards could
be made, unless earlier terminated by the board of directors pursuant to the
Option Plan and the options would vest over a five year period (i.e., 20% per
year), beginning one year after the date of grant of the option. Options would
be granted based upon several factors, including seniority, job duties and
responsibilities, job performance, our financial performance and a comparison of
awards given by other savings institutions converting from mutual to stock form.
The Company would receive no monetary consideration for the granting of
stock options under the Option Plan. It would receive the option price for each
share issued to optionees upon the exercise of such options. Shares issued as a
result of the exercise of options will be either authorized but unissued shares
or shares purchased in the open market by the Company. However, no purchases in
the open market will be made that would violate applicable regulations
restricting purchases by the Company. The exercise of options and payment for
the shares received would contribute to the equity of the Company.
If the Option Plan is implemented more than one year after the
conversion, the Option Plan will comply with OTS regulations and policies that
are applicable at such time.
Restricted Stock Plan. The boards of directors intend to adopt the RSP
following the conversion, the objective of which is to enable us to retain
personnel and directors of experience and ability in key positions of
responsibility. The Company expects to hold a stockholders' meeting no sooner
than six months after the conversion in order for stockholders to vote to
approve the RSP. If the RSP is implemented within one year after the conversion,
in accordance with applicable OTS regulations, the shares granted under the RSP
will be in the form of restricted stock vesting over a five year period (i.e.,
20% per year) beginning one year after the date of grant of the award.
Compensation expense to the Association in the amount of the fair market value
of the common stock granted will be recognized pro rata over the years during
which the shares are payable. Until they have vested, such shares may not be
sold, pledged or otherwise disposed of and are required to be held in escrow.
Any shares not so allocated would be voted by the RSP Trustees. The RSP will be
implemented in accordance with applicable OTS regulations. See "-- Restrictions
on Stock Benefit Plans." Awards would be granted based upon a number of factors,
including seniority, job duties and responsibilities, job performance, our
performance and a comparison of awards given by other institutions converting
from mutual to stock form. The RSP would be managed by a committee of
non-employee directors (the "RSP Trustees"). The RSP Trustees would have the
responsibility to invest all funds contributed by us to the trust created for
the RSP (the "RSP Trust").
We expect to contribute sufficient funds to the RSP so that the RSP
Trust can purchase, in the aggregate, up to 4% of the amount of common stock
that is sold in the conversion. The shares purchased by the RSP would be
authorized but unissued shares or would be purchased in the open market. In the
event the market price of the common stock is greater than $10 per share, our
contribution of funds will be increased. Likewise, in the event the market price
is lower than $10 per share, our contribution will be decreased. In recognition
of their prior and expected services to us and the Company, as the case may be,
the officers, other employees and directors responsible for implementation of
the policies adopted by the board of directors and our profitable operation
will, without cost to them, be awarded stock under the RSP. Based upon the sale
of 415,000 shares of common stock in the offering at the midpoint of the EVR,
the RSP Trust is expected to purchase up to 16,600 shares of common stock.
If the RSP is implemented more than one year after the conversion, the
RSP will comply with such OTS regulations and policies that are applicable at
such time.
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Restrictions on Stock Benefit Plans. OTS regulations provide that in
the event stock option or management and/or employee stock benefit plans are
implemented within one year from the date of conversion, such plans must comply
with the following restrictions: (1) the plans must be fully disclosed in the
prospectus, (2) for stock option plans, the total number of shares for which
options may be granted may not exceed 10% of the shares issued in the
conversion, (3) for restricted stock plans, the shares may not exceed 3% of the
shares issued in the conversion (4% for institutions with 10% or greater
tangible capital), (4) the aggregate amount of stock purchased by the ESOP in
the conversion may not exceed 10% (8% for well-capitalized institutions
utilizing a 4% restricted stock plan), (5) no individual employee may receive
more than 25% of the available awards under the option plan or the restricted
stock plans, (6) directors who are not employees may not receive more than 5%
individually or 30% in the aggregate of the awards under any plan, (7) all plans
must be approved by a majority of the total votes eligible to be cast at any
duly called meeting of the Company's stockholders held no earlier than six
months following the conversion, (8) for stock option plans, the exercise price
must be at least equal to the market price of the stock at the time of grant,
(9) for restricted stock plans, no stock issued in a conversion may be used to
fund the plan, (10) neither stock option awards nor restricted stock awards may
vest earlier than 20% as of one year after the date of stockholder approval and
20% per year thereafter, and vesting may be accelerated only in the case of
disability or death (or if not inconsistent with applicable OTS regulations in
effect at such time, in the event of a change in control), (11) the proxy
material must clearly state that the OTS in no way endorses or approves of the
plans, and (12) prior to implementing the plans, all plans must be submitted to
the Regional Director of the OTS within five days after stockholder approval
with a certification that the plans approved by the stockholders are the same
plans that were filed with and disclosed in the proxy materials relating to the
meeting at which stockholder approval was received.
Certain Related Transactions. We grant loans to our officers, directors
and employees. These loans are made in the ordinary course of business and upon
the same terms, including collateral, as those prevailing at the time for
comparable transactions and do not involve more than the normal risk of
collectibility or present any other unfavorable features. Loans to officers and
directors and their affiliates amounted to $219,000, or 9.8% of our retained
earnings at March 31, 1998. Assuming the conversion had occurred at September
30, 1997 with the issuance of 415,000 shares, these loans would have totalled
approximately 3.9% of pro forma consolidated stockholders' equity.
RESTRICTIONS ON ACQUISITION OF FARNSWORTH BANCORP, INC.
While the board of directors is not aware of any effort that might be
made to obtain control of the Company after conversion, the board of directors
believes that it is appropriate to include certain provisions as part of the
Company's certificate of incorporation to protect the interests of the Company
and its stockholders from hostile takeovers ("anti-takeover" provisions) which
the board of directors might conclude are not in our best interests or those of
our stockholders. These provisions may have the effect of discouraging a future
takeover attempt which is not approved by the board of directors but which
individual stockholders may deem to be in their best interests or in which
stockholders may receive a substantial premium for their shares over the current
market prices. As a result, stockholders who might desire to participate in such
a transaction may not have the opportunity to do so. Such provisions will also
render the removal of the current board of directors or management of the
Company more difficult.
The following discussion is a general summary of the material
provisions of the certificate of incorporation, bylaws, and certain other
regulatory provisions of the Company, which may be deemed to have such an
anti-takeover effect. The description of these provisions is necessarily general
and reference should be made in each case to the certificate of incorporation
and bylaws of the Company
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which are filed as exhibits to the registration statement of which this
prospectus is a part. See "Where You Can Find Additional Information" as to how
to obtain a copy of these documents.
Provisions of the Company Certificate of Incorporation and Bylaws
Limitations on Voting Rights. The certificate of incorporation of the
Company provides that after completion of the conversion, in no event shall any
record owner of any outstanding common stock which is beneficially owned,
directly or indirectly, by a person who beneficially owns in excess of 10% of
the then outstanding shares of common stock (the "Limit"), be entitled or
permitted to any vote in respect of the shares held in excess of the Limit. In
addition, for a period of five years from the completion of our conversion, no
person may directly or indirectly offer to acquire or acquire the beneficial
ownership of more than 10% of any class of an equity security of the Company
without the approval of the Company's continuing directors.
The impact of these provisions on the submission of a proxy on behalf
of a beneficial holder of more than 10% of the common stock is (1) to disregard
for voting purposes and require divestiture of the amount of stock held in
excess of 10% (if within five years of the conversion more than 10% of the
common stock is beneficially owned by a person), and (2) limit the vote on
common stock held by the beneficial owner to 10% or possibly reduce the amount
that may be voted below the 10% level (if more than 10% of the common stock is
beneficially owned by a person more than five years after the conversion).
Unless the grantor of a revocable proxy is an affiliate or an associate of such
a 10% holder or there is an arrangement, agreement or understanding with such a
10% holder, these provisions would not restrict the ability of such a 10% holder
of revocable proxies to exercise revocable proxies for which the 10% holder is
neither a record owner nor otherwise a beneficial owner. A person is a
beneficial owner of a security if he has the power to vote or direct the voting
of all or part of the voting rights of the security, or has the power to dispose
of or direct the disposition of the security. The certificate of incorporation
of the Company further provides that this provision limiting voting rights may
only be amended upon the vote of 80% of the outstanding shares of voting stock.
Election of Directors. Certain provisions of the Company's certificate
of incorporation and bylaws will impede changes in majority control of the board
of directors. The Company's articles of incorporation provide that the board of
directors of the Company will be divided into three staggered classes, with
directors in each class elected for three-year terms. Thus, it would take two
annual elections to replace a majority of the Company's board. The Company's
certificate of incorporation provides that the size of the board of directors
may be increased or decreased only if approved by a vote of two-thirds of the
whole board of directors. The bylaws also provide that any vacancy occurring in
the board of directors, including a vacancy created by an increase in the number
of directors, may be filled only by the board of directors, acting by a majority
vote of the directors then in office and any director so chosen shall hold
office until the next succeeding annual election of directors. Finally, the
articles of incorporation and the bylaws impose certain notice and information
requirements in connection with the nomination by stockholders of candidates for
election to the board of directors or the proposal by stockholders of business
to be acted upon at an annual meeting of stockholders.
The certificate of incorporation provides that a director may only be
removed for cause by the affirmative vote of at least 80% of the shares of the
Company entitled to vote generally in an election of directors cast at a meeting
of stockholders called for that purpose.
Restrictions on Call of Special Meetings. The certificate of
incorporation of the Company provides that a special meeting of stockholders may
be called only pursuant to a resolution adopted by
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a majority of the board of directors, or by a committee of the board of
directors which is authorized to call such meetings, or by the President of the
Company.
Absence of Cumulative Voting. The Company's certificate of
incorporation provides that stockholders may not cumulate their votes in the
election of directors.
Authorized Shares. The certificate of incorporation authorizes the
issuance of 5,000,000 shares of common stock and 1,000,000 shares of preferred
stock. The shares of common stock and preferred stock were authorized in an
amount greater than that to be issued in the conversion to provide the Company's
board of directors with as much flexibility as possible to effect, among other
transactions, financings, acquisitions, stock dividends, stock splits and the
exercise of stock options. However, these additional authorized shares may also
be used by the board of directors consistent with its fiduciary duty to deter
future attempts to gain control of the Company. The board of directors also has
sole authority to determine the terms of any one or more series of preferred
stock, including voting rights, conversion rates, and liquidation preferences.
As a result of the ability to fix voting rights for a series of preferred stock,
the board has the power, to the extent consistent with its fiduciary duty, to
issue a series of preferred stock to persons friendly to management in order to
attempt to block a post tender offer merger or other transaction by which a
third party seeks control, and thereby assist management to retain its position.
Procedures for Certain Business Combinations. The certificate of
incorporation requires that unless certain fair price provisions are met,
business combinations with any interested stockholder must be approved by the
affirmative vote of the holders of not less than 80% of the outstanding stock of
the Company not beneficially owned by the interested stockholder, or the
business combination must be approved by the continuing directors of the Company
and then by the Company's stockholders. Any amendment to this provision requires
the affirmative vote of at least 80% of the shares of the Company entitled to
vote generally in an election of directors.
Amendment to Certificate of Incorporation and Bylaws. Amendments to the
Company's certificate of incorporation must be approved by the Company's board
of directors and also by a majority of the outstanding shares of the Company's
voting stock, provided, however, that approval by at least 80% of the
outstanding voting stock is required for certain provisions (i.e., provisions
relating to restrictions on the acquisition and voting of greater than 10% of
the common stock; number, classification, election and removal of directors;
amendment of bylaws; call of special stockholder meetings; director liability;
certain business combinations; power of indemnification; and amendments to
provisions relating to the foregoing in the certificate of incorporation).
The bylaws may be amended by a two-thirds vote of the board of
directors or the affirmative vote of the holders of at least 80% of the
outstanding shares of the Company entitled to vote in the election of directors,
cast at a meeting called for that purpose.
Benefit Plans. In addition to the provisions of the Company's
certificates of incorporation and bylaws described above, certain of our benefit
plans adopted in connection with the conversion contain provisions which may
also discourage hostile takeover attempts which the board of directors might
conclude are not in our best interests in those of or our stockholders. For a
description of the benefit plans and the provisions of such plans relating to
changes in control, see "Management of Peoples Savings Bank -- Proposed Future
Stock Benefit Plans."
Regulatory Restrictions. A federal regulation prohibits any person
prior to the completion of a conversion from transferring, or entering into any
agreement or understanding to transfer, the legal or
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beneficial ownership of the subscription rights issued under a plan of
conversion or the stock to be issued upon the exercise of such rights. This
regulation also prohibits any person prior to the completion of a conversion
from offering, or making an announcement of an offer or intent to make an offer,
to purchase such subscription rights or stock. For three years following
conversion, OTS regulations prohibit any person, without the prior approval of
the OTS, from acquiring or making an offer to acquire more than 10% of the stock
of any converted savings institution if such person is, or after consummation of
such acquisition would be, the beneficial owner of more than 10% of such stock.
In the event that any person, directly or indirectly, violates this regulation,
the securities beneficially owned by such person in excess of 10% shall not be
counted as shares entitled to vote and shall not be voted by any person or
counted as voting shares in connection with any matter submitted to a vote of
stockholders.
Federal regulations require that, prior to obtaining control of an
insured institution, a person, other than a company, must give 60 days notice to
the OTS and have received no OTS objection to such acquisition of control, and a
company must apply for and receive OTS approval of the acquisition. Control,
involves a 25% voting stock test, control in any manner of the election of a
majority of the institution's directors, or a determination by the OTS that the
acquiror has the power to direct, or directly or indirectly to exercise a
controlling influence over, the management or policies of the institution.
Acquisition of more than 10% of an institution's voting stock, if the acquiror
also is subject to any one of either "control factors," constitutes a rebuttable
determination of control under the regulations. The determination of control may
be rebutted by submission to the OTS, prior to the acquisition of stock or the
occurrence of any other circumstances giving rise to such determination, of a
statement setting forth facts and circumstances which would support a finding
that no control relationship will exist and containing certain undertakings. The
regulations provide that persons or companies which acquire beneficial ownership
exceeding 10% or more of any class of a savings association's stock after the
effective date of the regulations must file with the OTS a certification that
the holder is not in control of such institution, is not subject to a rebuttable
determination of control and will take no action which would result in a
determination or rebuttable determination of control without prior notice to or
approval of the OTS, as applicable.
DESCRIPTION OF CAPITAL STOCK
The Company is authorized to issue 5,000,000 shares of common stock,
$0.10 par value per share, and 1,000,000 shares of serial preferred stock, $0.10
par value per share. The Company currently expects to issue up to 548,838 shares
of common stock in the conversion. The Company does not intend to issue any
shares of serial preferred stock in the conversion, nor are there any present
plans to issue such preferred stock following the conversion. The aggregate par
value of the issued shares will constitute the capital account of the Company.
The balance of the purchase price will be recorded for accounting purposes as
additional paid-in capital. See "Capitalization." The capital stock of the
Company will represent nonwithdrawable capital and will not be insured by us,
the FDIC, or any other governmental agency.
Common Stock
Voting Rights. Each share of the common stock will have the same
relative rights and will be identical in all respects with every other share of
the common stock. The holders of the common stock will possess exclusive voting
rights in the Company, except to the extent that shares of serial preferred
stock issued in the future may have voting rights. Each holder of the common
stock will be entitled to only one vote for each share held of record on all
matters submitted to a vote of holders of the common stock and holders will not
be permitted to cumulate their votes in the election of the Company's directors.
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Liquidation. In the unlikely event of the complete liquidation or
dissolution of the Company, the holders of the common stock will be entitled to
receive all assets of the Company available for distribution in cash or in kind,
after payment or provision for payment of (i) all debts and liabilities of the
Company; (ii) any accrued dividend claims; and (iii) liquidation preferences of
any serial preferred stock which may be issued in the future.
Restrictions on Acquisition of the Common Stock. See "Restrictions on
Acquisition of Farnsworth Bancorp, Inc." for a discussion of the limitations on
acquisition of shares of the common stock.
Other Characteristics. Holders of the common stock will not have
preemptive rights with respect to any additional shares of the common stock
which may be issued. Accordingly, the board of directors may sell shares of
capital stock of the Company without first offering such shares to existing
stockholders of the Company. The common stock is not subject to call for
redemption, and the outstanding shares of common stock when issued and upon
receipt by the Company of the full purchase price therefor, will be fully paid
and non-assessable.
Issuance of Additional Shares. Except in the offering and possibly
pursuant to the RSP or Option Plan, the Company has no present plans, proposals,
arrangements or understandings to issue additional authorized shares of the
common stock. In the future, the authorized but unissued and unreserved shares
of the common stock will be available for general corporate purposes, including,
but not limited to, possible issuance: (i) as stock dividends; (ii) in
connection with mergers or acquisitions; (iii) under a cash dividend
reinvestment or stock purchase plan; (iv) in a public or private offering; or
(v) under employee benefit plans. See "Risk Factors -- Possible Dilutive Effect
of RSP and Stock Options" and "Pro Forma Data." Normally no stockholder approval
would be required for the issuance of these shares, except as described herein
or as otherwise required to approve a transaction in which additional authorized
shares of the common stock are to be issued.
For additional information, see "Dividends," "Regulation" and
"Taxation" with respect to restrictions on the payment of cash dividends; "The
Conversion -- Restrictions on Sales and Purchases of Shares by Directors and
Officers" relating to certain restrictions on the transferability of shares
purchased by directors and officers; and "Restrictions on Acquisitions of
Farnsworth Bancorp, Inc." for information regarding restrictions on acquiring
common stock of the Company.
Serial Preferred Stock
None of the 1,000,000 authorized shares of serial preferred stock of
the Company will be issued in the conversion. After the conversion is completed,
the board of directors of the Company will be authorized to issue serial
preferred stock and to fix and state voting powers, designations, preferences or
other special rights of such shares and the qualifications, limitations and
restrictions thereof, subject to regulatory approval, but without stockholder
approval. If and when issued, the serial preferred stock is likely to rank prior
to the common stock as to dividend rights, liquidation preferences, or both, and
may have full or limited voting rights. The board of directors, without
stockholder approval, can issue serial preferred stock with voting and
conversion rights which could adversely affect the voting power of the holders
of the common stock. The board of directors has no present intention to issue
any of the serial preferred stock.
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LEGAL AND TAX MATTERS
The legality of the common stock has been passed upon for us by
Malizia, Spidi, Sloane & Fisch, P.C., Washington, D.C. Certain legal matters for
Ryan, Beck & Co. may be passed upon by Luse Lehman Gorman Pomerenk & Schick,
P.C., Washington, DC. The federal income tax consequences of the conversion have
been passed upon for us by Malizia, Spidi, Sloane & Fisch, P.C., Washington,
D.C. The New Jersey income tax consequences of the conversion have been passed
upon for us by Wells, Singer, Rubin & Musulin.
EXPERTS
The financial statements of Peoples Savings Bank as of and for the
years ended September 30, 1997 and 1996, appearing in this document have been
audited by Lewis W. Parker, III, independent certified public accountants, as
set forth in their report which appears elsewhere in this document, and is
included in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
FinPro, Inc. has consented to the publication herein of a summary of
its letters to Peoples Savings Bank setting forth its opinion as to our
estimated pro forma market value in converted form and its opinion setting forth
the value of subscription rights. It has also consented to the use of its name
and statements with respect to it appearing in this document.
REGISTRATION REQUIREMENTS
The common stock of the Company is registered pursuant to Section 12(g)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The
Company will be subject to the information, proxy solicitation, insider trading
restrictions, tender offer rules, periodic reporting and other requirements of
the SEC under the Exchange Act. The Company may not deregister the common stock
under the Exchange Act for a period of at least three years following the
conversion.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the
Exchange Act and must file reports and other information with the SEC.
The Company has filed with the SEC a registration statement on Form
SB-2 under the Securities Act of 1933, as amended, with respect to the common
stock offered in this document. As permitted by the rules and regulations of the
SEC, this document does not contain all the information set forth in the
registration statement. Such information can be examined without charge at the
public reference facilities of the SEC located at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and copies of such material can be obtained from the SEC
at prescribed rates. The SEC also maintains an internet address ("Web site")
that contains reports, proxy and information statements and other information
regarding registrants, including the Company, that file electronically with the
SEC. The address for this Web site is "http://www.sec.gov". The statements
contained in this document as to the contents of any contract or other document
filed as an exhibit to the Form SB-2 are, of necessity, brief descriptions and
are not necessarily complete; each such statement is qualified by reference to
such contract or document.
79
<PAGE>
Peoples Savings Bank has filed an Application for Conversion with the
OTS with respect to the conversion. Pursuant to the rules and regulations of the
OTS, this document omits certain information contained in that Application. The
Application may be examined at the principal office of the OTS at 1700 G Street,
N.W., Washington, D.C. 20552 and at the Northeast Regional Office of the OTS, 10
Exchange Place, 18th Floor, Jersey City, New Jersey 07302.
A copy of the certificates of incorporation and the bylaws of the
Company are available without charge from the Company.
80
<PAGE>
Peoples Savings Bank
Index to Financial Statements
Page
----
Independent Auditors' Report.............................................. F-1
Statements of Financial Condition......................................... F-2
Statements of Income...................................................... 35
Statements of Retained Earnings........................................... F-3
Statements of Cash Flows.................................................. F-4
Notes to Financial Statements............................................. F-5
All schedules are omitted because the required information is either not
applicable or is included in the financial statements or related notes.
Separate financial statements for the Company have not been included since it
will not engage in material transactions until after the conversion. The
Company, which has been inactive to date, has no significant assets,
liabilities, revenues, expenses or contingent liabilities.
81
<PAGE>
LEWIS W. PARKER, III
CERTIFIED PUBLIC ACCOUNTANT
- -------------------------------
P.O. BOX 6510, 9L PRINCESS ROAD
LAWRENCEVILLE, N.J. 08648
TEL: 609-896-2177
FAX: 609-844-0133
To the Board of Directors
Peoples Savings Bank
INDEPENDENT AUDITOR'S REPORT
----------------------------
I have audited the accompanying statements of financial condition of Peoples
Savings Bank as of September 30, 1997 and 1996, and the related statements of
income and retained earnings and cash flows for the years then ended. These
financial statements are the responsibility of the Bank's management. My
responsibility is to express an opinion on these financial statements based on
my audits.
I conducted my audits in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audits provide a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly , in
all material respects, the financial position of Peoples Savings Bank at
September 30, 1997 and 1996, and the results of its operations and cash flows
for the years then ended in conformity with generally accepted accounting
principles.
/s/Lewis W. Parker
-----------------------------------
October 29, 1997
Except for Note 19
as to which the date is
June 10, 1998
F-1
<PAGE>
PEOPLES SAVINGS BANK
STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
September 30,
March 31, -------------------------------------
ASSETS 1998 1997 1996
------ ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C>
Cash and due from banks $ 474,699 $ 1,282,390 $ 121,898
Interest bearing deposits with banks 2,449,766 1,082,151 361,404
Securities available for sale 128,278 95,992 65,995
Securities held to maturity 2,758,440 3,755,516 5,400,707
Mortgage backed and related securities
held to maturity 2,539,703 3,016,352 2,780,512
Loans receivable, net 28,280,451 26,408,713 23,261,013
Accrued interest receivable 237,569 247,263 257,344
Federal Home Loan Bank of New York stock
at cost substantially restricted 261,300 234,100 234,100
Premises and equipment 1,466,145 1,463,866 1,499,991
Foreclosed real estate -- -- 297,690
Other assets 88,757 32,263 81,542
----------- ----------- -----------
Total assets $38,685,108 $37,618,606 $34,362,196
=========== =========== ===========
LIABILITIES AND RETAINED EARNINGS
---------------------------------
Deposits $36,088,181 $35,196,576 $29,569,883
Advances by borrowers for taxes and
insurance 164,684 157,843 151,907
Accrued income taxes 128,124 84,594 8,526
Accrued interest payable 53,762 50,789 71,271
Accounts payable and other accrued
expenses 25,041 40,313 246,696
Federal Home Loan Bank advances -- -- 2,435,291
----------- ----------- -----------
Total liabilities 36,459,792 35,530,115 32,483,574
----------- ----------- -----------
Commitments and contingencies -- -- --
----------- ----------- -----------
Retained earnings:
Partially restricted 2,142,856 2,029,176 1,837,269
Net unrealized appreciation on available
for sale securities net of taxes 82,460 59,315 41,353
----------- ----------- -----------
Total retained earnings 2,225,316 2,088,491 1,878,622
----------- ----------- -----------
Total liabilities and retained
earnings $38,685,108 $37,618,606 $34,362,196
=========== =========== ===========
</TABLE>
The accompanying notes are and
integral part of these financial statements.
F-2
<PAGE>
PEOPLES SAVINGS BANK
STATEMENTS OF RETAINED EARNINGS
For the Six Months Ended March 31, 1998
(Unaudited) and the Years Ended September 30, 1997 and 1996
<TABLE>
<CAPTION>
Net Unrealized
Appreciation
on Securities Total
Retained Available for Retained
Earnings Sale, Net of Tax Earnings
-------- ---------------- --------
<S> <C> <C> <C>
Balance at September 30, 1995 $1,857,388 $ 24,675 $1,882,063
Net income (20,119) -- (20,119)
Change in unrealized appreciation
on securities available for
sale, net of tax -- 16,678 16,678
---------- ---------------- ----------
Balance at September 30, 1996 1,837,269 41,353 1,878,622
Net income 191,907 -- 191,907
Change in unrealized appreciation
on securities available for
sale, net of tax -- 17,962 17,962
---------- ---------------- ----------
Balance at September 30, 1997
(unaudited) 2,029,176 59,315 2,088,491
Net income (unaudited) 113,680 -- 113,680
Change in unrealized appreciation
on securities available for
sale, net of tax (unaudited) -- 23,145 23,145
---------- ---------------- ----------
Balance at March 31, 1998
(unaudited) $2,142,856 $ 82,460 $2,225,316
========== ================ ==========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
F-3
<PAGE>
PEOPLES SAVINGS BANK
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended Year Ended
March 31, September 30,
1998 1997 1997 1996
----------- ----------- ----------- ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 13,680 $ 61,849 $ 191,907 $ (20,119)
----------- ----------- ----------- -----------
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 27,159 25,576 57,264 53,107
Net (gain) loss on sale of assets (933) -- 5,220 1,290
Decrease (increase) in accrued
interest receivable 9,694 4,179 10,081 (2,722)
Decrease (increase) in prepaid
expenses and other assets (56,494) 32,088 49,279 (34,248)
Increase (decrease) in advances
from borrowers 6,841 (13,426) 5,936 27,673
Increase (decrease) in accrued
income taxes 43,530 7,065 76,068 (84,040)
Increase (decrease) in accrued
interest payable 2,973 (1,258) (20,482) (22,261)
Increase (decrease) in other
accrued liabilities (15,272) (191,338) (206,383) 123,260
----------- ----------- ----------- -----------
Total adjustments 17,498 (137,114) (23,017) 62,059
----------- ----------- ----------- -----------
Net cash provided by
operations 131,178 (75,265) 168,890 41,940
----------- ----------- ----------- -----------
Cash flows from investing
activities:
Net increase in interest-bearing
deposits with banks (1,367,615) (3,930,003) (720,747) (361,404)
Net increase in loans receivable (1,871,738) (1,185,392) (3,147,700) (2,634,265)
Redemption (purchase) of securities,
to be held to maturity 1,464,384 809,445 1,384,394 (2,187,347)
Purchase of securities, available
for sale (996,875) -- (1,215,742) (1,000,000)
Proceeds from sale of securities,
available for sale 997,808 -- 1,219,685 4,500,625
Purchase of Federal Home Loan Bank
stock (27,000) -- -- (78,800)
Proceeds from sale of real estate
owned -- 168,378 297,690
Purchase of premises and equipment (29,438) 5,590 (17,380) (47,527)
----------- ----------- ----------- -----------
Net cash provided by (used in)
investing activities (1,830,474) (4,131,982) (2,199,800) (1,808,718)
----------- ----------- ----------- -----------
Cash flows from financing activities:
Increase (decrease) in savings
accounts and demand deposits 891,605 5,367,887 3,074,729 (109,197)
Net increase (decrease) in
certificates of deposit -- -- 2,551,964 (1,642,550)
Federal Home Loan Bank Advance
(repayment) -- (935,291) (2,435,291) 2,435,291
----------- ----------- ----------- -----------
Net cash provided by
financing activities 891,605 4,432,596 3,191,402 683,544
----------- ----------- ----------- -----------
Net increase (decrease) in cash
and due from banks (807,691) 225,349 1,160,492 (1,083,234)
Cash at beginning of period 1,282,390 131,898 121,898 1,205,132
----------- ----------- ----------- -----------
Cash at end of period $ 474,699 $ 357,247 $ 1,282,390 $ 121,898
=========== =========== =========== ===========
Supplemental disclosure:
Cash paid during the period for:
Interest $ 694,520 $ 389,109 $ 1,429,565 $ 1,244,183
=========== =========== =========== ===========
Income taxes $ 6,500 $ 45,255 $ 2,055 $ 45,295
=========== =========== =========== ===========
Loans receivable transferred to
foreclosed real estate $ -- $ -- $ -- $ 164,794
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
F-4
<PAGE>
PEOPLES SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
------------------------------------------
Basis of Financial Statement Presentation
-----------------------------------------
The financial statements have been prepared in conformity with generally
accepted accounting principles. In preparing the financial statements,
management is required to make estimates and assumptions that affect the
reported amount of assets and liabilities as of the date of the balance
sheet and revenues and expenses for the period then ended. Actual results
could differ significantly from those estimates. Material estimates that
are particularly susceptible to significant changes in the near term
relate to the determination of the allowance for loan losses, the
valuation of foreclosed real estate and the assessment of prepayment risks
associated with mortgage-backed securities. Management believes that the
allowance for loan losses is adequate, foreclosed real estate is
appropriately valued and prepayment risks associated with mortgage-backed
securities are properly recognized. While management uses available
information to recognize losses on loans and foreclosed real estate,
future additions to the allowance for loan losses or further writedowns of
foreclosed real estate may be necessary based on changes in economic
conditions in the market area. Additionally, assessments of prepayment
risks related to mortgage-backed securities are based upon current market
conditions, which are subject to frequent change.
In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Bank's allowance for loan
losses and foreclosed real estate. Such agencies may require the Bank to
recognize additions to the allowance for loan losses or additional
writedowns on foreclosed real estate based on their judgements about
information available to them at the time of their examination.
Concentration of Risk
---------------------
The Bank's lending and real estate activity is concentrated in real estate
and loans secured by real estate located in the State of New Jersey. The
Bank's loan portfolio is predominantly made up of 1 to 4 family unit first
mortgage loans in Burlington County. These loans are typically secured by
first lien positions on the respective real estate properties and are
subject to the Bank's loan underwriting policies. In general, the Bank's
loan portfolio performance is dependent upon the local economic
conditions.
Interest-rate Risk
------------------
The Bank is principally engaged in the business of attracting deposits
from the general public and using these deposits to make loans secured by
real estate and, to a lesser extent, consumer loans and to purchase
mortgage-backed and investment securities. The potential for interest-rate
risk exists as a result of the shorter duration of the Bank's
interest-sensitive liabilities compared to the generally longer duration
of interest-sensitive assets. In a rising interest rate environment,
liabilities will reprice faster than assets, thereby reducing the market
value of long-term assets and net interest income. For this reason,
management regularly monitors the maturity structure of the Bank's assets
and liabilities in order to measure its level of interest-rate risk and to
plan for future volatility.
Cash Equivalents
----------------
For the purpose of presentation in the statements of cash flows, cash and
cash equivalents are defined as those amounts included in the
balance-sheet caption "cash and due from banks."
F-5
<PAGE>
PEOPLES SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
(Continued)
1. Summary of Significant Accounting Policies (Continued)
------------------------------------------
Investment and Mortgaged-backed Securities
------------------------------------------
The Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 115 "Accounting for Certain
Investments in Debt and Equity Securities" which is effective for years
beginning after December 15, 1993. This statement requires that
investments in debt and equity securities owned shall be classified into
one of three categories: held-to-maturity, available-for-sale, or trading.
the Bank's investments in securities are classified in two categories and
accounted for as follows:
o Securities Held to Maturity. Bond,s notes and debentures for which the
Bank has the positive intent and ability to hold to maturity are
reported at cost, adjusted for amortization of premiums and accretion
of discounts which are recognized in interest income using the
interest method over the period to maturity.
o Securities Available for Sale. Securities available for sale consist
of certain debt and equity securities not classified as trading or
securities to be held to maturity.
Declines in the fair value of individual held to maturity and available
for sale securities below their cost that are other than temporary will
result in write-downs of the individual securities to their fair value.
The related write-downs will be included in earnings as realized losses.
Unrealized holding gains and losses, net of tax, on securities available
for sale are reported as a net amount in a separate component of equity
until realized.
Gains and losses on the sale of securities available for sale are
determined using the specific-identification method.
Premiums and discounts are recognized in interest income using the
interest method over the period to maturity.
Loans Receivable
----------------
Loans receivable that management has the intent and ability to hold for
the foreseeable future or until maturity or pay-off are reported at their
outstanding principal adjusted for any charge-offs, the allowance for loan
losses, and any deferred fees or costs on originated loans and unamortized
premiums or discounts on purchased loans.
Discounts and premiums on purchased residential real estate loans are
amortized to income using the interest method over the remaining period to
contractual maturity, adjusted for anticipated prepayments. Discounts and
premiums on purchased consumer loans are recognized over the expected
lives of the loans using methods that approximate the interest method.
Loan origination fees and certain direct origination costs are capitalized
and recognized as an adjustment of the yield of the related loan.
Effective October 1, 1995, the Savings Bank adopted FASB Statements No.
114, "Accounting by Creditors for Impairment of a Loan," and No. 118,
"Accounting by Creditors for Impairment of a Loan - Income Recognition and
Disclosures." The provisions of these statements are applicable to all
loans, uncollateralized as well as collateralized, except large groups of
smaller- balance homogeneous loans that are collectively evaluated for
impairment and loans that are measured at fair value or at the lower of
cost or fair value. Loans classified as impaired are to be measured based
on the present value
F-6
<PAGE>
PEOPLES SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
(Continued)
1. Summary of Significant Accounting Policies (Continued)
------------------------------------------
Loans Receivable (Continued)
----------------
of expected future cash flows discounted at the loan's effective interest
rate, or as a practical expedient, at the loan's observable market price
or the fair value of the collateral if the loan is collateral dependent. A
loan evaluated for impairment is deemed to be impaired when based on
current information and events, it is probable that the Savings Bank will
be unable to collect all amounts due according to the contractual terms of
the loan agreement. All loans identified as impaired are evaluated
independently. No loans were identified as impaired as of September 30,
1997 and 1996, respectively.
The allowance for loan losses is increased by charges to income and
decreased by charge-offs (net of recoveries). Management's periodic
evaluation of the adequacy of the allowance is based on the Bank's past
loan loss experience, known and inherent risks in the portfolio, adverse
situations that may affect the borrower's ability to repay, the estimated
value of any underlying collateral, and current economic conditions.
The accrual of interest on impaired loans is discontinued when, in
management's opinion, the borrower may be unable to meet payments as they
become due. When interest accrual is discontinued, all unpaid accrued
interest is reversed. Interest income is subsequently recognized only to
the extent cash payments are received.
Premises and Equipment
----------------------
Land is carried at cost. Bank premises and equipment are carried at cost
less accumulated depreciation and amortization. Significant renovations
and additions are capitalized. When assets are retired or otherwise
disposed of, the cost and related accumulated depreciation are removed
from the accounts and any resulting gain or loss is reflected in income
for the period. The cost of maintenance and repairs is charged to expense
as incurred. The Bank computes depreciation on a straight-line basis over
the estimated useful lives of the assets.
Foreclosed Real Estate
----------------------
Real estate properties acquired through, or in lieu of, loan foreclosure
are initially recorded at the lower of cost or fair value at the date of
foreclosure. Costs relating to development and improvement of property are
capitalized, whereas costs relating to the holding of property are
expensed. Valuations are periodically performed by management, and an
allowance for losses is established by a charge to operations if the
carrying value of a property exceeds its fair value less estimated selling
cost. Gains and losses from sale of these properties are recognized as
they occur. Income from operating properties is recorded in operations as
earned.
Income Taxes
------------
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date of any
law change.
Deferred income taxes are recognized for differences in the time of
recording significant items of income and expense in the financial
accounting records and their inclusion in or deduction from taxable
income.
F-7
<PAGE>
PEOPLES SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
(Continued)
1. Summary of Significant Accounting Policies (Continued)
------------------------------------------
Reclassification
----------------
Certain amounts for the year ended September 30, 1996, have been
reclassified to conform with the current period's presentation.
2. Investment Securities
---------------------
The carrying amounts and fair values of investments in securities at March
31, 1998 and September 30, 1997 and 1996 are summarized as follows:
<TABLE>
<CAPTION>
March 31, 1998
-------------------------------------------------------
Amortized Gross Unrealized
Amortized --------------------------
Cost Gains Losses Fair Value
---- ----- ------ -----------
(Unaudited)
<S> <C> <C> <C> <C>
Held to maturity:
U.S. Government and agency
securities $ 2,659,255 $ -- $ 47,391 $ 2,611,864
Municipal securities 99,185 12,519 -- 111,704
----------- ---------- ---------- -----------
$ 2,758,440 $ 12,519 $ 47,391 $ 2,723,568
=========== ========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
September 30, 1997
------------------------------------------------------
Gross Unrealized
Amortized -------------------------
Cost Gains Losses Fair Value
---- ----- ------ ----------
<S> <C> <C> <C> <C>
Held to maturity:
U.S. Government and agency
securities $ 3,656,359 $ -- $ 105,428 $3,550,931
Municipal securities 99,157 11,714 -- 110,871
----------- ---------- ---------- ----------
$ 3,755,516 $ 11,714 $ 105,428 $3,661,802
=========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
September 30, 1996
-------------------------------------------------------
Gross Unrealized
Amortized ------------------------
Cost Gains Losses Fair Value
---- ----- ------ ----------
<S> <C> <C> <C> <C>
Held to maturity:
U.S. Government and agency
securities $ 5,301,663 $ -- $ 217,216 $5,084,447
Municipal securities 99,044 6,811 -- 105,855
----------- ---------- ---------- ----------
$ 5,400,707 $ 6,811 $ 217,216 $5,190,302
=========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
March 31, 1998
------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C>
Available for sale securities:
Equity securities $ 3,339 $ 124,939 $ -- $ 128,278
=========== ========== ========== ==========
September 30, 1997
Available for sale securities:
Equity securities $ 3,339 $ 92,653 $ -- $ 95,992
=========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
September 30, 1996
------------------
<S> <C> <C> <C> <C>
Available for sale securities:
Equity securities $ 3,339 $ 62,616 $ -- $ 65,955
=========== ========== ========== ==========
</TABLE>
The schedule of maturities of securities to be held-to-maturity at March
31, 1998 (unaudited), were as follows:
Held-to-Maturity
Securities
-------------------------------------
Amortized Fair
Cost Value
---- -----
Due in one year or less $ -- $ --
Due from one to five years 747,583 773,603
Due from five to ten years 1,411,672 1,339,041
Due after ten years 599,186 610,925
---------- ----------
$2,758,441 $2,723,569
========== ==========
F-8
<PAGE>
PEOPLES SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
(Continued)
3. Mortgage Backed Securities, Held to Maturity
--------------------------------------------
Investments in mortgage-backed and related securities are stated at cost,
adjusted for amortization of premiums and accretion of fees and discounts
using a method that approximates level yield. The Bank has adequate
liquidity and capital, and it is generally management's intention to hold
such assets to maturity.
The carrying values and fair values of mortgage-backed and related
securities are summarized as follows:
<TABLE>
<CAPTION>
March 31, 1998
-----------------------------------------------------------------------------
Principal Unamortized Unearned Carrying
Balance Premiums Discounts Value
------- -------- --------- -----
(Unaudited)
<S> <C> <C> <C> <C>
GNMA Certificates $ 892,996 $ 13,886 $ -- $ 906,882
FHLMC and FNMA
Certificates 1,642,468 -- 9,647 1,632,821
---------- ----------- --------- ----------
$2,535,464 $ 13,886 $ 9,647 $2,539,703
========== =========== ========= ==========
</TABLE>
<TABLE>
<CAPTION>
March 31, 1998
-----------------------------------------------------------------------------
Gross Unrealized
Carrying --------------------------------------
Value Gains Losses Value
----- ----- ------ -----
(Unaudited)
<S> <C> <C> <C> <C>
GNMA Certificates $ 906,882 $ 9,627 $ -- $ 916,509
FHLMC and FNMA
Certificates 1,632,821 3,636 -- 1,636,457
---------- ----------- --------- ----------
$2,539,703 $ 13,263 $ -- $2,552,966
========== =========== ========= ==========
</TABLE>
<TABLE>
<CAPTION>
September 30, 1997
-----------------------------------------------------------------------------
Principal Unamortized Unearned Carrying
Balance Premiums Discounts Value
------- -------- --------- -----
<S> <C> <C> <C> <C>
GNMA Certificates $ 991,502 $ 15,221 $ -- $1,006,723
FHLMC and FNMA
Certificates 2,020,626 -- 10,997 2,009,629
---------- ----------- --------- ----------
$3,012,128 $ 15,221 $ 10,997 $3,016,352
========== =========== ========= ==========
</TABLE>
<TABLE>
<CAPTION>
September 30, 1997
------------------------------------------------------------------------------
Gross Unrealized
Carrying ----------------------------------------
Value Gains Losses Value
----- ----- ------ -----
<S> <C> <C> <C> <C>
GNMA Certificates $1,006,723 $ 15,047 $ -- $1,021,770
FHLMC and FNMA
Certificates 2,009,629 -- 3,563 2,006,066
---------- ----------- --------- ----------
$3,016,352 $ 15,047 $ 3,563 $3,027,836
========== =========== ========= ==========
</TABLE>
<TABLE>
<CAPTION>
September 30, 1996
------------------------------------------------------------------------------
Principal Unamortized Unearned Carrying
Balance Premiums Discounts Value
------- -------- --------- -----
<S> <C> <C> <C> <C>
GNMA Certificates $1,174,580 $ 20,038 $ -- $1,194,618
FHLMC and FNMA
Certificates 1,593,165 -- 2,271 1,585,894
---------- ----------- --------- ----------
$2,767,745 $ 20,038 $ 2,271 $2,780,512
========== =========== ========= ==========
</TABLE>
<TABLE>
<CAPTION>
September 30, 1996
------------------------------------------------------------------------------
Gross Unrealized
Carrying ---------------------------------------
Value Gains Losses Value
----- ----- ------ -----
<S> <C> <C> <C> <C>
GNMA Certificates $1,194,618 $ -- $ 8,818 $1,185,800
FHLMC and FNMA
Certificates 1,585,894 -- 49,308 1,536,586
---------- ----------- --------- ----------
$2,780,512 $ -- $ 58,126 $2,722,386
========== =========== ========= ==========
</TABLE>
F-9
<PAGE>
PEOPLES SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
(Continued)
3. Mortgage Backed Securities, Held to Maturity (Continued)
--------------------------------------------
Securities with a face value and fair value of $619,296 (unaudited),
$944,928 and $802,652, respectively are pledged as security for deposits
of governmental entities under the provisions of Governmental Unit Deposit
Protection Act (GUDPA) as of March 31, 1998, September 30, 1997 and 1996.
4. Accrued Interest Receivable
---------------------------
Accrued interest receivable is summarized as follows:
<TABLE>
<CAPTION>
September 30,
March 31, -------------------------------
1998 1997 1996
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
Loans receivable $ 195,493 $ 185,970 $ 164,013
Mortgage backed securities 13,395 15,996 14,201
Investments 28,681 45,297 79,130
---------- ----------- -----------
$ 237,569 $ 247,263 $ 257,344
========== =========== ===========
</TABLE>
5. Loans Receivable
----------------
Loans receivable at March 31, 1998, September 30, are summarized as
follows:
<TABLE>
<CAPTION>
September 30,
March 31, ---------------------------------
1998 1997 1996
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
First mortgage loans Principal balance:
Secured by one to four
family residence $21,578,479 $20,220,605 $19,107,731
Construction loans 2,331,561 2,842,410 1,840,300
Commercial real estate 1,234,199 1,143,688 541,065
----------- ----------- -----------
25,144,239 24,206,703 21,489,096
Less:
Loans in process (292,727) (894,743) (1,137,037)
Unearned discounts (12,466) (12,466) (12,466)
Deferred loan origination
fees net of costs of
($79,736, $64,643 and
$57,153) (150,409) (141,171) (140,715)
----------- ----------- -----------
Total first mortgage
loans 24,688,637 23,158,323 20,198,878
----------- ----------- -----------
Consumer and other loans Principal balances:
Home equity 3,223,707 3,003,459 2,860,795
Personal loans 86,402 48,939 7,918
Loans secured by savings 230,558 246,442 197,422
Commercial line of credit 176,147 17,550 54,000
----------- ----------- -----------
Total consumer and other
loans 3,716,814 3,316,390 3,120,135
----------- ----------- -----------
Total Loans 28,405,451 26,474,713 23,319,013
Less allowance for loan losses:
General valuation allowance (125,000) (66,000) (58,000)
----------- ----------- -----------
Total loans receivable $28,280,451 $26,408,713 $23,261,013
=========== =========== ===========
</TABLE>
F-10
<PAGE>
PEOPLES SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
(Continued)
5. Loans Receivable (Continued)
----------------
At March 31, 1998 and September 30, 1997 and 1996, nonaccrual loans for
which interest had been discontinued totalled approximately $201,000
(unaudited), $126,512 and $-0-, respectively. Interest income actually
recognized is summarized as follows:
<TABLE>
<CAPTION>
September 30,
March 31, --------------------------------
1998 1997 1996
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
Interest income that would
have been recorded $ 7,707 $ 9,478 $ --
Interest income recognized -- 4,677 --
---------- ----------- -----------
Interest income foregone $ 7,707 $ 4,801 $ --
========== =========== ===========
</TABLE>
An analysis of the change in the allowance for loan losses:
<TABLE>
<CAPTION>
September 30,
March 31, -------------------------------
1998 1997 1996
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
Allowance for loan losses:
General valuation allowance:
Beginning of year $ 66,000 $ 58,000 $ 45,500
Addition 59,000 8,000 20,500
Charge offs -- -- (8,000)
---------- ----------- -----------
End of year $ 125,000 $ 66,000 $ 58,000
========== =========== ===========
</TABLE>
The activity with respect to loans to directors, officers and associates
of such persons, is summarized as follows:
<TABLE>
<CAPTION>
September 30,
March 31, --------------------------------
1998 1997 1996
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
Beginning of period $ 291,218 $ 301,675 $ 276,191
Loans originated -- 25,000 42,055
Collection of principal 71,944 35,457 16,571
---------- ----------- -----------
End of period $ 219,274 $ 291,218 $ 301,675
========== =========== ===========
</TABLE>
All loans are collateralized by deposits and/or real estate.
6. Premises and Equipment
----------------------
Premises and equipment are summarized by major classification as follows:
<TABLE>
<CAPTION>
September 30,
March 31, ----------------------------------
1998 1997 1996
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
Land $ 128,262 $ 126,435 $ 126,435
Office building (Bordentown) 1,349,960 1,349,960 1,349,960
Office building (Florence) 38,299 38,299 38,299
Furniture, fixtures and equipment 312,356 284,745 269,117
---------- ----------- -----------
1,828,877 1,799,439 1,783,811
Less accumulated
depreciation 362,732 335,573 283,820
---------- ----------- -----------
$1,466,145 $ 1,463,866 $ 1,499,991
========== =========== ===========
</TABLE>
F-11
<PAGE>
PEOPLES SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
(Continued)
6. Premises and Equipment (Continued)
----------------------
Depreciation charged to operations was $27,159 (unaudited) and $25,576
(unaudited) for the six months ended March 31, 1998 and 1997 and $51,753
and $51,688 for the years ended 1997 and 1996, respectively. Useful lives
used in the calculation of depreciation are as follows:
Buildings 25 to 40 years
Building improvements and land improvements 7 to 15 years
Furniture and equipment 5 to 7 years
7. Deposits
--------
Deposits as of September 30, are summarized as follows:
<TABLE>
<CAPTION>
March 31, 1997 1996
1998 ----------- -------
Amount Amount Amount
------ ------ ------
(Unaudited)
<S> <C> <C> <C>
NOW accounts $ 4,516,477 $ 3,518,176 $ 2,427,442
Money Market accounts 2,539,829 2,912,054 2,216,550
Passbook and club accounts 7,007,468 5,963,246 5,815,444
Non Interest Bearing 2,549,996 2,933,125 1,792,436
----------- ----------- -----------
Subtotal 16,613,770 15,326,601 12,251,872
----------- ----------- -----------
Certificates of deposit:
0.0% to 3.0% -- -- 2,678
3.01% to 4.0% 529,190 660,029 1,262,520
4.01% to 5.0% 3,657,864 2,278,310 4,635,555
5.01% to 6.0% 14,369,181 15,905,072 9,944,181
6.01% to 7.0% 918,076 1,026,564 1,473,077
----------- ----------- -----------
Total Certificates of
Deposit 19,474,311 19,869,975 17,318,011
----------- ----------- -----------
Total Deposits $36,088,081 $35,196,576 $29,569,883
=========== =========== ===========
</TABLE>
The aggregate amount of jumbo certificates of deposit with a
minimum denomination of $100,000 was approximately $1,695,000
(unaudited), $2,236,764 and $1,265,000 at March 31, 1998,
September 30, 1997 and 1996. These certificates of deposit do not
receive preferential rates of interest.
As of March 31, 1998 (unaudited) and September 30, 1997 and 1996,
scheduled maturities of certificates of deposit (rounded to the
nearest $1,000) are summarized as follows:
<TABLE>
<CAPTION>
September 30,
March 31, -------------------------------------
1998 1997 1996
----------- ----------- -------
(Unaudited)
<S> <C> <C> <C>
3 months or less $ 4,646,000 $ 4,070,000 $ 3,478,000
3 months to 6 months 4,399,000 5,798,000 4,211,000
6 months to 1 year 6,678,000 5,353,000 5,305,000
1 year to 3 years 2,613,000 4,040,000 4,028,000
3 years to 5 years 1,138,000 609,000 296,000
----------- ----------- -----------
$19,474,000 $19,870,000 $17,318,000
=========== =========== ===========
</TABLE>
F-12
<PAGE>
PEOPLES SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
(Continued)
7. Deposits (Continued)
--------
Interest expense on deposits for the six months ended March 31, 1998 and
1997 and the years ended September 30, 1997 and 1996 is summarized as
follows:
<TABLE>
<CAPTION>
September 30,
March 31, March 31, ------------------------------
1998 1997 1997 1996
---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
NOW accounts $ 48,881 $ 43,809 $ 252,442 $ 73,848
Money market accounts 83,195 75,101 106,291 58,739
Passbook and club accounts 30,246 481,895 225,869 167,370
Certificates of deposit 514,189 25,034 744,038 886,682
----------- ----------- ----------- -----------
$ 676,511 $ 625,839 $ 1,328,640 $ 1,186,639
=========== =========== =========== ===========
</TABLE>
8. Other Borrowed Funds
--------------------
Borrowed funds at March 31 and September 30 are summarized as follows:
<TABLE>
<CAPTION>
September 30,
March 31, ----------------------------------
1998 1997 1996
----------- ----------- -------
(Unaudited)
<S> <C> <C> <C>
Advances from Federal Home
Loan Bank $ -- $ -- $ 1,435,291
Overnight borrowings from
Federal Reserve Bank -- -- 1,000,000
----------- ----------- -----------
$ -- $ -- $ 2,435,291
=========== =========== ===========
</TABLE>
Interest is payable on these advances at rates ranging from 5.54% to 5.86%
with maturities due October and December of 1996. These advances are
collateralized by Federal Home Loan Bank stock, investments in securities
and mortgages. The Association has $9,684,527 (unaudited) and $9,404,651
available for borrowing as of March 31, 1998 and September 30, 1997.
9. Retained Earnings
-----------------
In connection with the insurance of savings accounts the Bank has
maintained general reserves which may be used only for absorbing future
losses. These reserves do not reflect amounts of losses actually
anticipated and the appropriations thereto have not been charged against
tax income. Such reserves represent a restriction on retained earnings of
the Bank. At March 31, 1998 (unaudited) and September 30, 1997 and 1996,
this reserve was $306,008.
10. Gains and Losses on Sale of Interest Earning Assets
---------------------------------------------------
Gains and losses are summarized as follows:
<TABLE>
<CAPTION>
September 30,
March 31, --------------------------------
1998 1997 1996
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
Realized gain (loss) on sales of:
Investment securities $ 933 $ 6,977 $ 1,791
========== =========== ===========
</TABLE>
F-13
<PAGE>
PEOPLES SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
(Continued)
11. Income Taxes
------------
The Bank has qualified as a Savings Institution under provisions of the
Internal Revenue Code. Prior to January 1, 1996 the bank was permitted to
deduct from taxable income an allowance for bad debts based on a
percentage- of-taxable-income, the rate was 8% before such deduction.
Retained earnings at March 31, 1998, September 30, 1997 and 1996 included
untaxed earnings of approximately $489,704, $489,704 and $472,905,
representing such bad debt deductions.
On August 21, 1996, legislation was signed into law which repealed the
percentage of taxable income method for tax bad debt deductions. The
repeal is effective for the Bank's taxable year beginning October 1, 1996.
In addition, the legislation requires the Bank to include in taxable
income its bad debt reserves in excess of its base year reserves over a
six, seven, or eight year period depending upon the attainment of certain
loan origination levels. Since the percentage of taxable income method for
federal tax bad debt deductions and the corresponding increase in the
Federal tax bad debt reserve in excess of the base year have been
reflected as temporary differences pursuant to FASB Statement No. 109,
with deferred income taxes recorded thereon, this change in the tax law
did not have a material adverse effect on the Bank's financial position or
operations.
Retained earnings at March 31, 1998 and September 30, 1997 includes
approximately $241,000 of tax bad debt deductions which, in accordance
with FASB Statement No. 109, are considered a permanent difference between
the book and income tax basis of loans receivable, and for which income
taxes have not been provided. If such amount is used for purposes other
than bad debt losses, including distributions in liquidation, it will be
subject to income tax at the then current rate.
The provision for federal and state income taxes differs from that
computed at the statutory graduated rates as follows:
<TABLE>
<CAPTION>
September 30,
March 31, March 31, -------------------------------
1998 1997 1997 1996
---------- ---------- ----------- -------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Tax at statutory rates $ 47,645 $ 24,309 $ 94,114 $ (14,300)
Decrease in tax:
Tax exempt income (1,000) (1,000) (2,000) (2,000)
Miscellaneous (8,600) (1,309) (10,774) (5,660)
---------- ---------- ----------- -----------
$ 38,045 $ 22,000 $ 81,340 $ (21,960)
========== ========== =========== ===========
</TABLE>
The tax provision is summarized as follows:
<TABLE>
<CAPTION>
September 30,
---------------------------------
March 31, March 31,
1998 1977 1997 1996
---------- ---------- ----------- -------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Current federal $ 42,729 $ (15,382) $ 3,006 $ 31,144
Deferred federal (7,786) 35,619 71,238 (52,074)
Current state 3,964 (1,475) 620 3,570
Deferred state (862) 3,238 6,476 (4,600)
---------- ---------- ----------- -----------
$ 38,045 $ 22,000 $ 81,340 $ (21,960)
========== ========== =========== ===========
</TABLE>
F-14
<PAGE>
PEOPLES SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
(Continued)
11. Income Taxes (Continued)
------------
The following temporary differences gave rise to deferred tax assets and
liabilities:
<TABLE>
<CAPTION>
March 31, September September
1998 30, 1997 30, 1996
---- -------- --------
(Unaudited)
<S> <C> <C> <C>
Deferred tax assets:
Allowance for loan losses $ 41,875 $ 22,167 $ 19,700
Deferred loan origination
fees, net 33,000 30,920 26,221
Accrued payroll 4,300 8,350 5,700
SAIF assessment -- -- 68,900
---------- ---------- ----------
Total deferred tax
assets 79,175 61,437 120,521
---------- ---------- ----------
Deferred tax liabilities:
Premises and equipment 17,320 17,390 10,800
Unrecorded appreciation on
investments 42,500 33,340 21,300
Tax reserve for loan
losses 91,647 91,647 91,647
---------- ---------- ----------
Total deferred tax
liabilities 151,467 142,377 123,747
---------- ---------- ----------
Net deferred tax asset
(liability) $ (72,292) $ (80,940) $ (3,226)
========== ========== ==========
</TABLE>
12. Commitments & Contingencies
---------------------------
At March 31, 1998 the Bank had the following commitments outstanding.
Mortgage commitments are for 45 days. Home equity commitments are for 60
days. The commitments are summarized as follows:
<TABLE>
<CAPTION>
Amounts Rate Term
------- ---- ----
(Unaudited)
<S> <C> <C> <C>
Mortgages $ 1,322,500 6.125% to 7.375% 10 to 30 years
Mortgages (construction) 165,000 Prime + 1% or 2% 6 month &
1 points 12 month
Commercial loan 200,000 FHLB + 1.50% 30 years
Home Equity Loan 17,500 Prime + 1.5% to 3 to 15 years
----------- 9.00%
$ 1,705,000
===========
</TABLE>
There are four letters of credit outstanding. An annual fee of 1 point is
due on each of the letters of credit. Interest is due at various rates if
the letters of credit are utilized. The value of all four letters totals
$198,418. The institution also has lines of credit with undrawn balances
of $368,034.
F-15
<PAGE>
PEOPLES SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
(Continued)
13. Lease Commitments
-----------------
At September 30, 1997, the Bank was obligated under a noncancellable
operating lease for a vehicle. This lease requiring monthly payments of
$432 expired October 15, 1997. A new vehicle lease was signed October 9,
1997. The terms of the new lease are $477 per month for 24 months. Net
rent expense under the operating lease, included in automobile expense,
was approximately $2,862 and $2,592 for the six months ended March 31,
1998 and 1997 and $5,189 and $4,127 for the years ended September 30, 1997
and 1996, respectively. Future minimum lease payments are as follows:
12 Months Ended
March 31 Amount
-------- ------
(Unaudited)
1999 $ 5,724
2000 2,862
-----------
$ 8,586
===========
14. Financial Instruments
---------------------
Off-Balance-Sheet Instruments
-----------------------------
Fair values for off-balance-sheet lending commitments are based on fees
currently charged to enter into similar agreements, taking into account
the remaining terms of the agreements and the counterparties' credit
standings.
Fair Values of Financial Instruments
------------------------------------
The following methods and assumptions were used by the Bank in estimating
fair values of financial instruments as disclosed herein:
Cash and Short-Term Instruments
-------------------------------
The carrying amounts of cash and short-term instruments approximate
their fair value.
Available-for-Sale and Held-to-Maturity Securities
--------------------------------------------------
Fair values for securities, excluding restricted equity securities, are
based on quoted market prices. The carrying values of restricted equity
securities approximate fair values.
Loans Receivable
----------------
For variable-rate loans that reprice frequently and have no significant
change in credit risk, fair values are based on carrying values. Fair
values for certain mortgage loans and other consumer loans are based on
quoted market prices of similar loans sold in conjunction with
securitization transactions, adjusted for differences in loan
characteristics. Fair values for commercial real estate and commercial
loans are estimated using discounted cash flow analyses, using interest
rates currently being offered for loans with similar terms to borrowers
of similar credit quality. Fair values for impaired loans are estimated
using discounted cash flows analyses or underlying collateral values,
where applicable.
F-16
<PAGE>
PEOPLES SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
(Continued)
14. Financial Instruments (Continued)
---------------------
Fair Values of Financial Instruments (Continued)
------------------------------------
Deposit Liabilities
-------------------
The fair values disclosed for demand deposits are, by definition, equal
to the amount payable on demand at the reporting date. The carrying
amounts of variable-rate, fixed-term money-market accounts and
certificates of deposit (CDs) approximate their fair values at the
reporting date. Fair values for fixed-rate CDs are estimated using a
discounted cash flow calculation that applies interest rates currently
being offered on certificates to a schedule of aggregated expected
monthly maturities on time deposits.
Short-Term Borrowings
---------------------
The carrying amounts of federal funds purchased, and other short-term
borrowings maturing within 90 days approximate their fair values. Fair
values of other short-term borrowings are estimated using discounted
cash flow analyses based on the Bank's current incremental borrowing
rates for similar types of borrowing arrangements.
Long-Term Debt
--------------
The fair values of the Bank's long-term debt are estimated using
discounted cash flow analyses based on the Bank's current incremental
borrowing rates for similar types of borrowing arrangements.
Accrued Interest
----------------
The carrying amounts of accrued interest approximate their fair values.
Other Off-Balance-Sheet Instruments
-----------------------------------
In the ordinary course of business the Bank has entered into
off-balance- sheet financial instruments consisting of commitments to
extend credit AND commercial letters of credit. Such financial
instruments are recorded in the financial statements when they are
funded or related fees are incurred or received.
The Bank is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing need of its
customers and to reduce its own exposure to fluctuation in interest rates.
These financial instruments include commitments to extend credit.
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the loan
agreement. These commitments are comprised of the undisbursed portion of
construction loans and residential loan origination. The Bank's exposure
to credit loss from nonperformance by the other party to the financial
instruments for commitments to extend credit is represented by the
contractual amount of those instruments. The Bank uses the same credit
policies in making commitments and conditional obligations as it does for
on-balance-sheet instruments. Generally, collateral, usually in the form
of real estate, is required to support financial instruments with credit
risk.
The Bank's exposure to credit loss in the event of nonperformance by the
other party to the financial statement for commitments to extend credit,
standby letters of credit, and financial guarantees written is represented
by the contractual notional amount of those instruments. The Bank uses the
same credit policies in making commitments and conditional obligations as
it does for on-balance-sheet instruments.
Unless noted otherwise, the Bank does not require collateral or other
security to support financial instruments with credit risk.
F-17
<PAGE>
PEOPLES SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
(Continued)
14. Financial Instruments (Continued)
---------------------
Commitments to Extend Credit and Financial Guarantees. Commitments to
extend credit are agreements to lend to a customer as long as there is no
violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon by customers, the total commitment amounts
do not necessarily represent future cash requirements. The Bank evaluates
each customer's credit worthiness on a case-by-case basis. The amount of
collateral obtained, if it is deemed necessary by the Bank upon extension
of credit, is based on management's credit evaluation of the counter
party. Collateral held varies but may include accounts receivable;
inventory, property, plant, and equipment; and income-producing commercial
properties.
Standby letters of credit and financial guarantees written are conditional
commitments issued by the Bank to guarantee the performance of a customer
to a third party. Those guarantees are primarily issued to support public
and private borrowing arrangements, including commercial paper, bond
financing, and similar transactions. The credit risk involved in issuing
letters of credit is essentially the same as that involved in extending
loan facilities to customers. The Bank has not been required to perform on
any financial guarantees during the past two years. The Bank has not
incurred any losses on its commitments in either 1997 or 1996.
The estimated fair values of the Bank's financial instruments were as
follows at: (000's omitted)
<TABLE>
<CAPTION>
March 31, 1998 September 30, 1997 September 30, 1996
---------------------- --------------------- -----------------------
Carrying Fair Carrying Fair Carrying Fair
Financial Assets Amount Value Amount Value Amount Value
---------------- -------- ------- -------- ------- -------- ------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 475 $ 475 $ 1,282 $ 1,282 $ 483 $ 483
Interest bearing deposit 2,450 2,450 1,082 1,082 -- --
Securities held to maturity 5,298 5,277 6,772 6,690 8,181 7,971
Securities available for sale 128 128 96 96 66 66
Loans receivable 28,280 28,670 26,409 26,107 23,261 22,959
Accrued interest receivable 238 238 247 247 257 257
Real estate owned -- -- -- -- 298 298
Financial Liabilities
---------------------
Deposit liabilities 36,088 36,076 35,197 35,170 29,570 29,511
Short-term borrowings -- -- -- -- 2,435 2,435
Commitments to originate loans 1,705 1,705 653 653 1,434 1,434
</TABLE>
15. Pension Plan
------------
During the fiscal year ended September 30, 1996, the Board adopted a
salary reduction thrift plan. The plan covers all employees with 1 year of
service of at least 1,000 hours. The Bank matches elective employee
deferrals at a rate of 50% of the deferral for the first 6% deferred. The
employee may defer another 9% of his salary. Employer contributions were
$3,652 (unaudited) and $5,171 (unaudited) and for the six months ended
March 31, 1998 and 1997 and $6,767 and $3,672 for 1997 and 1996,
respectively.
16. Regulatory Capital Requirement
------------------------------
The Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory -- and possibly
additional discretionary -- actions by regulators that, if undertaken,
could have a direct material effect on the Bank's financial statements.
Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Bank must meet specific capital guidelines that
involve
F-18
<PAGE>
PEOPLES SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
(Continued)
16. Regulatory Capital Requirement (Continued)
------------------------------
quantitative measures of the Bank's assets, liabilities, and certain off-
balance-sheet items as calculated under regulatory accounting practices.
The Bank's capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings,
and other factors.
The Office of Thrift Supervision ("OTS") has prescribed capital
requirements which include three separate measurements of capital
adequacy: a leverage- ratio capital standard ("core"), a tangible capital
standard and a risk- based capital standard (collectively known as the
"Capital Rule"). The Capital Rule requires each savings institution to
maintain tangible capital equal to at least 1.5% of its adjusted total
assets and core capital equal to at least 4.0% of its adjusted total
assets. The Capital Rule further requires each savings institution to
maintain total capital equal to at least 8.0% of its risk-weighted assets.
The institution at September 30, 1997 and 1996 meets the regulatory core
capital, tangible capital, and risk based capital requirements as
summarized:
<TABLE>
<CAPTION>
To be Well-
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
---------------------- ----------------------- ------------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(Dollars to Thousands)
<S> <C> <C> <C> <C> <C> <C>
As of September 30, 1996:
Risk-based capital $ 1,896 12.18 $ 1,245 8.00 $ 1,557 10.00
Tier 1 capital 1,838 11.80 N/A N/A 934 6.00
Core capital 1,838 5.35 1,031 3.00 1,718 5.00
Tangible capital 1,838 5.35 807 1.50 N/A N/A
As of September 30, 1997:
Risk-based capital $ 2,095 11.52 1,454 8.00 1,818 10.00
Tier 1 capital 2,029 11.16 N/A N/A 1,091 6.00
Core capital 2,029 5.40 1,127 3.00 1,878 5.00
Tangible capital 2,029 5.40 563 1.50 N/A N/A
As of March 31, 1998:
Risk-based capital $ 2,225 11.59 $ 1,536 8.00 $ 1,920 10.00
Tier 1 capital 2,100 8.84 N/A N/A 1,425 6.00
Core capital 2,100 5.43 1,160 3.00 1,933 5.00
Tangible capital 2,100 5.43 580 1.50 N/A N/A
</TABLE>
A reconciliation of net worth, as reported in the financial statements to
regulatory capital is as follows:
<TABLE>
<CAPTION>
Tangible Core Risk-based
Capital Capital Capital
------- ------- -------
(In Thousands)
<S> <C> <C> <C>
As of September 30, 1996:
GAAP capital per financial
statements $ 1,879 $ 1,879 $ 1,879
Unrealized gain on securities
available for sale (41) (41) (41)
General allowance for loan losses -- -- --
-------- ------- ----------
Total regulatory capital 1,838 1,838 1,838
Minimum required capital 515 1,031 1,245
-------- ------- ----------
Excess regulatory capital $ 1,323 $ 807 $ 593
======== ======= ==========
</TABLE>
F-19
<PAGE>
PEOPLES SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
(Continued)
16. Regulatory Capital Requirement (Continued)
------------------------------
<TABLE>
<CAPTION>
Tangible Core Risk-based
Capital Capital Capital
------- ------- -------
(In Thousands)
<S> <C> <C> <C>
As of September 30, 1997:
GAAP capital per financial
statements $ 2,088 $ 2,088 $ 2,088
Unrealized gain on securities
available for sale (59) (59) (59)
General allowance for loan losses -- -- 66
-------- ------- ----------
Total regulatory capital 2,029 2,029 2,095
Minimum required capital 563 1,127 1,454
-------- ------- ----------
Excess regulatory capital $ 1,466 $ 902 $ 641
======== ======= ==========
</TABLE>
<TABLE>
<CAPTION>
Tangible Core Risk-based
Capital Capital Capital
------- ------- -------
(In Thousands)
<S> <C> <C> <C>
As of March 31, 1998 (unaudited)
GAAP capital per financial
statements $ 2,225 $ 2,225 $ 2,225
Unrealized gain on securities
available for sale (125) (125) (125)
General allowance for loan losses -- -- 125
-------- ------- ----------
Total regulatory capital 2,100 2,100 2,225
Minimum required capital 580 1,160 1,536
-------- ------- ----------
Excess regulatory capital $ 1,520 $ 940 $ 689
======== ======= ==========
</TABLE>
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") imposes increased requirements on the operations of financial
institutions and mandated the development of regulations designed to
empower regulators to take prompt corrective action with respect to
institutions that fall below certain capital standards. FDICIA stipulates
that an institution with less than 4% core capital is deemed to be
undercapitalized. Quantitative measures established by FDICIA to ensure
capital adequacy require the Bank to maintain minimum amounts and ratios
of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital to average assets
(as defined). Management believes, as of September 30, 1997, that the Bank
meets all capital adequacy requirements to which it is subject.
As of September 19, 1997, the most recent notification from the OTS, the
Bank was categorized as well capitalized under the regulatory framework
for prompt corrective action. To be categorized as well capitalized, the
Bank must maintain minimum total, risk-based, and Tier I leverage ratios
of 10%, 6%, and 5%, respectively. There are no conditions existing or
events which have occurred since notification that management believes
have changed the institution's category.
Management believes that, under the current regulations, the Bank will
continue to meet its minimum capital requirements in the foreseeable
future. However, events beyond the control of the Bank could adversely
affect its future minimum capital requirements.
F-20
<PAGE>
PEOPLES SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
(Continued)
17. Special Deposit Insurance Assessment
------------------------------------
On September 30, 1996, congressional legislation was enacted which is
designed to recapitalize the Savings Association Insurance Fund (SAIF) and
to eliminate the substantial deposit premium disparity between Bank
Insurance Fund and SAIF-insured institutions. The legislation imposed a
one-time assessment on all SAIF-insured deposits, as of March 31, 1995.
For the Bank, the assessment totalled $191,615, and is reflected in the
non-interest expenses section of the statement of income for the year
ended September 30, 1996.
Beginning on January 1, 1997, the FDIC has estimated that, in addition to
normal deposit insurance premiums, BFI members will pay a portion of the
FICO payment equal to 1.3 basis points on BIF-insured deposits compared to
6.4 basis points by SAIF members on SAIF-insured deposits. All
institutions will pay a pro-rate share of the FICO payment on the earlier
of January 1, 2000 or the date upon which the last savings association
ceases to exist. The legislation also requires BIF and SAIF to be merged
by January 1, 1999 provided that legislation is adopted to eliminate the
savings association charter and no savings associations remain as of the
time.
The FDIC has recently lowered SAIF assessments to a range comparable to
that of BIF members, although SAIF members must also make the FICO
payments described above. Management cannot predict the precise level of
FDIC insurance assessments on an ongoing basis or whether the BIF and SAIF
will eventually be merged.
18. Bank Charter and Name Change
----------------------------
During 1996, the Bank converted from a state chartered mutual savings and
loan to a federally chartered mutual savings bank after this the bank
changed its name from Peoples Savings Bank, SLA to Peoples Savings Bank.
19. Plan of Conversion and Reorganization (Unaudited)
-------------------------------------------------
On March 2, 1998, the Board of Directors of the Bank adopted a Plan of
Conversion, pursuant to which the bank would be converted from a federal
mutual savings bank to a federally chartered stock savings bank, with the
concurrent formation of a holding company.
The Conversion will be accomplished through adoption of the proposed
Federal Stock Charter and Bylaws to authorize the issuance of capital
stock by the Bank, at which time the Bank will become a wholly-owned
subsidiary of the Holding Company. The Conversion will be accounted for at
historical cost in a manner similar to a pooling of interests. As part of
the Conversion, the Bank is conducting a Subscription Offering of the
Common Stock for holders of subscription rights in the following order of
priority: (i) depositors of the Bank as of December 31, 1996 with deposits
of at least $50 ("Eligible Account Holders"); (ii) tax-qualified employee
benefit plans of the Bank (i.e., an employee stock ownership plan)' (iii)
other depositors of the Bank as of the last day of the calendar quarter
preceding the approval of the plan by OTS with deposits of at least $50
("Supplemental Eligible Account Holders"); and (iv) depositors who are
neither Eligible Account Holders nor Supplemental Eligible Account
Holders.
The Bank may offer shares not subscribed in a Community Offering to the
general public in New Jersey with a preference to natural persons residing
in Burlington County, New Jersey, subject to the prior rights of holders
of subscription rights.
F-21
<PAGE>
PEOPLES SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
(Continued)
19. Plan of Conversion and Reorganization (Unaudited) (Continued)
-------------------------------------------------
At the time of the conversion, the Bank will establish a Liquidation
Account in an amount equal to its total net worth as of the date of the
latest balance sheet appearing in the final prospectus. The Liquidation
Account will be maintained for the benefit of eligible account holders and
supplemental eligible account holders who continue to maintain their
accounts at the Bank after the conversion. The Liquidation Account will be
reduced annually to the extent that eligible account holders and
supplemental eligible account holders have reduced their qualifying
deposits. Subsequent increases will not restore an eligible account
holder's or supplemental eligible account holder's interest in the
Liquidation Account. In the event of a complete liquidation, each eligible
account holder and supplemental eligible account holder will be entitled
to receive a distribution from the Liquidation Account in the amount
proportionate to the current adjusted qualifying balances for accounts
they held.
Subsequent to the conversion, the Bank may not declare or pay cash
dividends if the effect thereof would cause stockholders' equity to be
reduced below (1) the amount required for the Liquidation Account or (ii)
applicable regulatory capital requirements or if such declaration and
payment would otherwise violate regulatory requirements.
Conversion costs will be deferred and deducted from the proceeds of the
shares sold in the conversion. If the conversion is not completed, all
costs will be charged as an expense. Conversion costs incurred through
June 10, 1998 totalled $53,448.
F-22
<PAGE>
You should rely only on the information contained in this document or that to
which we have referred you. We have not authorized anyone to provide you with
information that is different.This document does not constitute an offer to
sell, or the solicitation of an offer to buy, any of the securities offered
hereby to any person in any jurisdiction in which such offer or solicitation
would be unlawful. The affairs of Peoples Savings Bank or Farnsworth Bancorp,
Inc. may change after the date of this prospectus. Delivery of this document and
the sales of shares made hereunder does not mean otherwise.
Farnsworth Bancorp, Inc.
[LOGO]
Up to ________ Shares
(Anticipated Maximum, as adjusted)
Common Stock
PROSPECTUS
Ryan, Beck & Co.
Dated August __, 1998
THESE SECURITIES ARE NOT DEPOSITS OR ACCOUNTS
AND ARE NOT FEDERALLY INSURED OR GUARANTEED.
Until the later of _______ __, 1998, or 90 days after commencement of the
offering of common stock, all dealers that buy, sell or trade these securities,
whether or not participating in this distribution, may be required to deliver a
prospectus. This is in addition to the obligation of dealers to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
<PAGE>
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Officers and Directors.
Section 14A:3-5 of the New Jersey Business Corporation Act (the "Act")
describes those circumstances under which directors, officers, employees and
agents may be insured or indemnified against liability which they may incur in
their capacities as such.
The Certificate of Incorporation of Farnsworth Bancorp, Inc. (the
"Certificate") attached as Exhibit 3(i) hereto, requires indemnification of
directors, officers, employees or agents of the Company to the full extent
permissible under New Jersey law.
Farnsworth Bancorp, Inc. ("the Company") may purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee, or agent of
the Company or is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise against any liability asserted against such person and
incurred by such person in any such capacity, or arising out of such person's
status as such, whether or not the Company would have the power to indemnify
such person against such liability under the provisions of the Act or of the
Certificate.
Item 25. Other Expenses of Issuance and Distribution
Legal Fees ............................................... $ 70,000
Printing and postage...................................... 25,000
Appraisal/Business Plan................................... 24,000
Accounting fees........................................... 15,000
Data processing/Conversion agent.......................... 10,000
SEC Registration Fee...................................... 1,619
OTS Filing Fees........................................... 8,400
NASD Filing Fees.......................................... 1,049
Blue sky filing fees...................................... 5,000
Underwriting fees......................................... 100,000
Underwriter's expenses, including legal fees.............. 25,000
Miscellaneous expenses.................................... 44,932
-------
TOTAL $330,000
=======
<PAGE>
Item 26. Recent Sales of Unregistered Securities.
Not Applicable
Item 27. Exhibits:
The exhibits filed as part of this Registration Statement are
as follows:
<TABLE>
<CAPTION>
<S> <C>
1 Form of Sales Agency Agreement with Capital Resources, Inc.
2 Plan of Conversion
3(i) Certificate of Incorporation of Farnsworth Bancorp, Inc.
3(ii) Bylaws of Farnsworth Bancorp, Inc.
5 Opinion of Malizia, Spidi, Sloane & Fisch, P.C. regarding legality of securities registered
8.1 Federal Tax Opinion of Malizia, Spidi, Sloane & Fisch, P.C.
8.2 State Tax Opinion of Lewis W. Parker, III
8.3 Opinion of FinPro, Inc. as to the value of subscription rights
10.1 Employment Agreement between Peoples Savings Bank and Gary N. Pelehaty
10.2 Employment Agreement between Peoples Savings Bank and Charles Alessi
10.3 Change in Control Severance Agreement between Peoples Savings Bank and Elaine
Denelsbeck
23.1 Consent of Malizia, Spidi, Sloane & Fisch, P.C. (contained in its opinions filed as Exhibits
5 and 8.1)
23.2 Consent of Lewis W. Parker, III
23.3 Consent of FinPro, Inc.
23.4 Consent of Lewis W. Parker, III (contained in his opinion filed as Exhibit 8.2)
24 Power of Attorney (reference is made to the signature page)
27 Financial Data Schedule**
99.1 Stock Order Form
99.2 Marketing Materials
</TABLE>
----------------------
* To be filed by amendment
** Electronic filing only
Item 28. Undertakings
The undersigned registrant hereby undertakes:
(1) To file, during any period in which it offers or sells securities,
a post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933 ("Securities Act");
(ii) Reflect in the prospectus any facts or events which
individually or together, represent a fundamental change in the information in
the registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which
<PAGE>
was registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than a 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in the
effective registration statement.
(iii) Include any additional or changed material information
on the plan of distribution.
(2) For determining liability under the Securities Act, to treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) To file a post-effective amendment to remove from registration any
of the securities that remain unsold at the end of the offering.
(4) To provide to the underwriter at the closing specified in the
underwriting agreement, certificates in such denominations and registered in
such names as required by the underwriter to permit prompt delivery to each
purchaser.
(5) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the small business issuer pursuant to the foregoing provisions, or otherwise,
the small business issuer has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act, and is therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the small business issuer of expenses incurred or paid by a director,
officer or controlling person of the small business issuer in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
small business issuer will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended, the registrant certifies that it has reasonable grounds to believe that
it meets all of the requirements for filing on Form SB-2 and authorized this
registration statement to be signed on its behalf by the undersigned, in
Bordentown, New Jersey, on June 11, 1998.
FARNSWORTH BANCORP, INC.
By: /s/Gary N. Pelehaty
----------------------------------------
Gary N. Pelehaty
President and Chief Executive Officer
(Duly Authorized Representative)
We the undersigned directors and officers of Farnsworth Bancorp, Inc.
do hereby severally constitute and appoint Gary N. Pelehaty our true and lawful
attorney and agent, to do any and all things and acts in our names in the
capacities indicated below and to execute all instruments for us and in our
names in the capacities indicated below which said Gary N. Pelehaty may deem
necessary or advisable to enable Farnsworth Bancorp, Inc. to comply with the
Securities Act of 1933, as amended, and any rules, regulations and requirements
of the Securities and Exchange Commission, in connection with the registration
statement on Form SB-2 relating to the offering of Farnsworth Bancorp, Inc.
common stock, including specifically, but not limited to, power and authority to
sign for us or any of us, in our names in the capacities indicated below, the
registration statement and any and all amendments (including post-effective
amendments) thereto; and we hereby ratify and confirm all that Gary N. Pelehaty
shall do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, as
amended, this registration statement has been signed below by the following
persons in the capacities indicated as of June 11, 1998.
/s/George G. Aaronson, Jr. /s/Gary N. Pelehaty
- ----------------------------- ----------------------------------------
George G. Aaronson, Jr. Gary N. Pelehaty
Director President, Chief Executive Officer and Director
(Principal Executive Officer)
/s/Charles E. Adams
- -----------------------------
Charles E. Adams
Director
/s/Herman Gutstein /s/Charles Alessi
- ----------------------------- -----------------------------------------------
Herman Gutstein Charles Alessi
Chairman of the Board Vice President, Secretary and Treasurer
(Principal Financial and Accounting Officer)
/s/G. Edward Koenig, Jr.
- -----------------------------
G. Edward Koenig, Jr.
Director
/s/Edgar N. Peppler
- -----------------------------
Edgar N. Peppler
Director
/s/William H. Wainwright, Jr.
- -----------------------------
William H. Wainwright, Jr.
Director
<PAGE>
As filed with the Securities and Exchange Commission on June 12, 1998
Registration No. 333-_______
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
EXHIBITS
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
Farnsworth Bancorp, Inc.
----------------------------------------------
(Name of Small Business Issuer in Its Charter)
New Jersey 6035 (Requested)
- --------------------------------- ----------------- -------------------
(State or Other Jurisdiction (Primary SIC No.) (I.R.S. Employer
of Incorporation or Organization) Identification No.)
789 Farnsworth Avenue, Bordentown, New Jersey 08505
(609) 298-0723
----------------------------------------------------------------
(Address and Telephone Number of Principal Executive Offices and
Principal Place of Business)
Mr. Gary N. Pelehaty
President and Chief Executive Officer
Farnsworth Bancorp, Inc.
789 Farnsworth Avenue, Bordentown, New Jersey 08505
(609) 298-0723
---------------------------------------------------------
(Name, Address and Telephone Number of Agent for Service)
Please send copies of all communications to:
John J. Spidi, Esq.
Jean A. Milner, Esq.
MALIZIA, SPIDI, SLOANE & FISCH, P.C.
1301 K Street, N.W., Suite 700 East, Washington, D.C. 20005
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this registration statement becomes effective.
<PAGE>
INDEX TO EXHIBITS TO FORM SB-2
Exhibit
The exhibits filed as part of this Registration Statement are
as follows:
<TABLE>
<CAPTION>
<S> <C>
1 Form of Sales Agency Agreement with Capital Resources, Inc.
2 Plan of Conversion
3(i) Certificate of Incorporation of Farnsworth Bancorp, Inc.
3(ii) Bylaws of Farnsworth Bancorp, Inc.
5 Opinion of Malizia, Spidi, Sloane & Fisch, P.C. regarding legality of securities registered
8.1 Federal Tax Opinion of Malizia, Spidi, Sloane & Fisch, P.C.
8.2 State Tax Opinion of Lewis W. Parker, III
8.3 Opinion of FinPro, Inc. as to the value of subscription rights
10.1 Employment Agreement between Peoples Savings Bank and Gary N. Pelehaty
10.2 Employment Agreement between Peoples Savings Bank and Charles Alessi
10.3 Change in Control Severance Agreement between Peoples Savings Bank and Elaine Denelsbeck
23.1 Consent of Malizia, Spidi, Sloane & Fisch, P.C. (contained in its opinions filed as Exhibits 5
and 8.1)
23.2 Consent of Lewis W. Parker, III
23.3 Consent of FinPro, Inc.
23.4 Consent of Lewis W. Parker, III (contained in his opinion filed as Exhibit 8.2)
24 Power of Attorney (reference is made to the signature page)
27 Financial Data Schedule**
99.1 Stock Order Form
99.2 Marketing Materials
</TABLE>
----------------
* To be filed by amendment
** Electronic filing only
EXHIBIT 1
<PAGE>
FARNSWORTH BANCORP, INC.
(a New Jersey corporation)
548,838 Shares (Maximum, as adjusted)
Common Stock
(Par Value $0.10 Per Share)
AGENCY AGREEMENT
----------------
August __, 1998
Ryan, Beck & Co., Inc.
150 Monument Road
Suite 106
Bala Cynwyd, Pennsylvania 19004-1725
Dear Sirs:
Farnsworth Bancorp, Inc., a New Jersey corporation (the "Company") and
Peoples Savings Bank, a federally chartered mutual savings bank (the "Bank"),
hereby confirm their agreement with Ryan, Beck & Co., Inc. ("Ryan, Beck" or the
"Agent" or "you"), as follows:
Introductory. The Bank is in the process of converting from a federally
chartered savings bank in the mutual form to a federally chartered savings bank
in stock form in accordance with the provisions of the Home Owners' Loan Act, as
amended (the "HOLA"), and the rules and regulations of the Office of Thrift
Supervision ("OTS") which have been or which may be promulgated thereunder by
the OTS, such statute, rules and regulations being collectively referred to as
the "Conversion Regulations." An Application for Approval of Conversion has been
filed with the OTS (the "Conversion Application") and all amendments required to
the date hereof have also been filed. The Conversion Application includes, among
other things, the Bank's plan of conversion (the "Plan") and the Bank's proxy
statement for the Special Meeting of Members, to be held on September __, 1998
("Proxy Statement"). Prior to the date hereof, the Plan has been approved by the
Board of Directors (hereinafter referred to as "Directors") of the Bank and by
the OTS. Pursuant to the Plan, the Bank will convert from a federally chartered
mutual savings bank to a federally chartered stock savings bank; the Company has
filed an application (the "Holding Company Application") with the OTS to become
a registered savings and loan holding company under HOLA; all the issued and
outstanding stock of the Bank will be sold to the Company, and the Company will
issue and sell its Common Stock (as defined below) in a Subscription Offering
and, if necessary, in a Community Offering or Public Offering, including a
syndicated public offering, all of which are described below and in the Plan.
Collectively, these transactions are referred to herein as the "Conversion."
Collectively, the Subscription Offering, the Community Offering, and the Public
Offering, including a syndicated public offering, are herein referred to as the
"Offerings"; and the term "Offering" shall mean any of the Offerings
individually. In the Offerings, the Company is offering between 352,750 and
477,250 shares, with the possibility of offering up to 548,838 shares without a
resolicitation of subscribers, as contemplated by Title 12 of the Code of
Federal Regulations, Part 563b.
Upon consummation of the Conversion, the Company will have authorized
capital of 6,000,000 shares of capital stock, of which 5,000,000 shares shall be
common stock, $0.10 par value per share (the "Common Stock") and 1,000,000
shares shall be preferred stock of $0.10 par value. The Company, in accordance
with the Plan, is offering, in a subscription offering by way of nontransferable
subscription
<PAGE>
Ryan, Beck & Co., Inc.
August __, 1998
Page 2
rights, shares of Common Stock, in order of priority, to depositors of the Bank
with account balances of $50.00 or more as of December 31, 1996 ("Eligible
Account Holders"), the Bank's Employee Stock Ownership Plan, a tax qualified
employee benefit plan (the "ESOP"), depositors of the Bank with account balances
of $50.00 or more as of June 30, 1998 ("Supplemental Eligible Account Holders"),
and depositors other than Eligible Account Holders and Supplemental Eligible
Account Holders as of the Voting Record Date and borrowers of the Bank with
loans outstanding as of December 2, 1996 and continued outstanding as of the
Voting Record Date ("Other Members"). Any remaining shares not subscribed for in
the Subscription Offering may be offered by the Company for sale in a community
offering to the general public, with preference given to natural persons who
reside in Burlington County, New Jersey or to selected persons in a best efforts
Public Offering through Ryan, Beck ("Other Subscribers"). With the exception of
the ESOP, which intends to purchase up to 8% of the total number of shares of
Common Stock issued in the Conversion, no individual person, or persons ordering
through a single account, may purchase in the Subscription Offering more than
6,000 shares of the Common Stock offered in the Conversion; no person will be
permitted to purchase more than 6,000 shares of Common Stock in the Community
Offering or Public Offering; and no person, together with their associates, or
group of persons acting together, may purchase more than 6,000 shares of the
Common Stock offered in the conversion; provided, however that the maximum
overall purchase limitation may be increased or decreased as a result of changes
in market and financial conditions prior to the completion of the Conversion, or
to fill the order of the ESOP, and subject to OTS approval. It is acknowledged
that the Company in its sole discretion may accept or reject, in whole or in
part, any orders to purchase shares of the Common Stock received in the
Community Offering or in the Public Offering.
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form SB-2 (File No. 333-_____) (the
"Registration Statement") containing a Prospectus relating to the Offerings for
the registration of the Common Stock under the Securities Act of 1933, as
amended (the " 1933 Act"), and has filed such amendments thereto and such
amended prospectuses as may have been required to the date hereof. The
Prospectus, as amended, on file with the Commission at the time the Registration
Statement becomes effective is hereinafter called the "Prospectus", except that
if the Prospectus filed by the Company pursuant to Rule 424 (b) of the rules and
regulations of the Commission under the 1933 Act (the " 1933 Act Regulations")
differs from the prospectus on file at the time the Registration Statement
becomes effective, the term "Prospectus" shall refer to the prospectus filed
pursuant to Rule 424(b) from and after the time said prospectus is filed with
the Commission.
SECTION 1. Appointment of Agent; Compensation to the Agent. Subject to
the terms and conditions herein set forth, the Bank and the Company hereby
appoint the Agent as its agent to consult with and advise the Bank and the
Company, to solicit subscriptions and purchase orders for Common Stock on behalf
of the Bank and the Company, or manage a public offering of the Common Stock, as
the case may be, in connection with the Company's offering of Common Stock (i)
in the Subscription Offering, and (ii) if applicable, the Community Offering or
the Public Offering. On the basis of the representations, warranties and
agreements herein contained, and subject to the terms and conditions herein set
forth, Ryan, Beck accepts such appointment and agrees to consult with and advise
the Bank and the Company as to the matters set forth in Section 3 of the
Engagement Letter between the Agent and the Bank dated March 24, 1998, included
as Exhibit A attached hereto, and to use its best efforts to solicit
subscriptions and purchase orders for Common Stock in accordance with this
Agreement; provided, however, that the Agent shall not be
<PAGE>
Ryan, Beck & Co., Inc.
August __, 1998
Page 3
responsible for obtaining subscriptions or purchase orders for any specific
number of shares of Common Stock, shall not be required to purchase any shares
and shall not be obligated to take any action which is inconsistent with all
applicable laws, regulations, decisions or orders.
The appointment of the Agent hereunder shall terminate upon termination
of the Offerings and satisfaction of the obligations of the Bank and the Company
pursuant to this Agreement.
Subject to the prior approval of the Company and the Bank, Ryan, Beck
may also assemble and manage a selling group of broker dealers ("Selling Group")
which are members of the National Association of Securities Dealers, Inc.
("NASD") to participate in the solicitation of purchase orders for shares of
Common Stock in the Public Offering under a selected dealers' agreement (the
"Selected Dealers' Agreement"). the form of which is set forth as Exhibit B to
this Agreement.
In addition to the reimbursement of the expenses specified in Sections
6, 7 and 8 hereof, the Agent will receive an advisory, management and marketing
fee of $125,000 ("Advisory and Marketing Fee") for the sale of the Common Stock
sold in the Subscription Offering and, if applicable, the Community Offering.
Such fees will include out-of-pocket expenses (including legal fees and
out-of-pocket expenses of such Counsel). The parties acknowledge, however, that
such cap may be exceeded in the event of any material delay in the Offerings
which would require an update of the financial information contained in the
Prospectus for a period later than March 31, 1998. Should the Company elect to
conduct a Public Offering, a selling group of NASD member firms (which may
include Ryan, Beck or consist of only Ryan, Beck) under a Selected Dealers'
Agreement (the "Selling Group") may be implemented, and the Bank shall pay a fee
to Ryan, Beck for each share sold by it or selected dealers in a Public Offering
(collectively, "Selected Dealers' Fee") of five and one-half percent (5.5%) in
the aggregate. Ryan, Beck shall be responsible for paying any appropriate fees
to a selected dealer for any shares of Common Stock sold by such a selected
dealer in the Public Offering. The Advisory and Marketing Fee and the Selected
Dealers' Fee are hereinafter collectively referred to as the "Sales
Compensation." No Selected Dealers' Fee shall be payable pursuant to this
section in connection with the sale of Common Stock to officers, directors,
employees (and members of the immediate family thereof), and employee benefit
plans of the Company and the Bank. It is acknowledged that the Bank paid the
Agent $25,000 of the Advisory and Marketing Fee upon execution of the Engagement
Letter. Ryan, Beck will not commence sales of shares of Common Stock through
members of the Selling Group without prior approval of the Bank.
If the Conversion is not consummated by December 31, 1998, due to
conditions beyond the control of the Agent, or if the Agent terminates this
Agreement in accordance with Section 10 hereof, the Agent shall receive, in
addition to the Agent's reasonable out of pocket expenses, an advisory and
administrative services fee of $25,000 in consideration of its advisory and
administrative services in lieu of the Sales Compensation. If there is
necessitated a resolicitation of subscriptions and purchase orders, the Company,
the Bank and the Agent agree to negotiate in good faith an agreement to cover
the Agent's further fees and expenses in connection therewith.
The compensation specified above shall be payable (to the extent not
already paid) to the Agent on the earlier of the Closing Date (as hereinafter
defined), or a determination by the Company and the Bank to terminate or abandon
the Plan. The Bank and the Company agree to reimburse the Agent for the costs
and
<PAGE>
Ryan, Beck & Co., Inc.
August __, 1998
Page 4
expenses specified in Sections 6, 7 and 8 hereof, to the extent such costs and
expenses are reasonably incurred by the Agent, promptly upon receiving a
reasonable accounting of such costs and expenses.
SECTION 2. Closing Date: Release of Funds and Delivery of Certificates.
If all conditions precedent to the consummation of the Conversion, including,
without limitation, the sale of all Common Stock required by the Plan to be
sold, are satisfied, the Company agrees to issue or have issued the Common Stock
sold in the Offerings and to release for delivery certificates for Common Stock
on the Closing Date (as hereinafter defined) against payment therefor by release
of funds from the special interest bearing account referred to in Section 5(r)
hereof and by the authorized withdrawal of funds from deposit accounts of
Eligible Account Holders, Supplemental Eligible Account Holders and Other
Members in accordance with the Plan; provided, however, that no such funds shall
be released to the Company or withdrawn until the conditions specified in
Section 9 hereof shall have been complied with to the reasonable satisfaction of
the Agent and its counsel. Such release, withdrawal and payment shall be made at
the Closing Date of the Offerings, on a business day and at a place selected by
the Agent, which date and place are acceptable to the Bank and the Company, on
at least two business days prior notice to the Bank and Company (it being
understood that such business day shall not be more than ten business days after
completion of the Offerings or the solicitation of purchase orders for shares
under the Selected Dealers' Agreement unless an amendment to the Registration
Statement is required or the Conversion appraisal update has not been approved
by the OTS), or such other time or place as shall be agreed upon by the Agent,
the Bank and the Company. Certificates for Common Stock shall be delivered
directly to the purchasers thereof or in accordance with their directions. The
hour and date upon which the Company shall release or deliver the Common Stock
sold in the Offerings, in accordance with the terms hereof, are herein called
the "Closing Date."
SECTION 3. Prospectus: The Offerings. The Common Stock is to be offered
in the Offerings at $10.00 per share, as set forth on the cover page of the
Prospectus. The number of shares offered may be changed by the Company after
consultation with the Agent.
SECTION 4. Representations and Warranties of Company and Bank. The
Company and the Bank jointly and severally represent and warrant to the Agent as
follows.
(a) The Registration Statement was declared effective by the
Commission on August __, 1998. At the time the Registration Statement,
including the Prospectus contained therein, became effective, the
Registration Statement complied in all material respects with the
requirements of the 1933 Act and the 1933 Act Regulations and the
Registration Statement, any final Prospectus, any Blue Sky Application
or any Sales Document (as such terms are defined previously herein or
in Section 7 hereof) authorized by the Company or the Bank for use in
connection with the Offerings (and only with respect to information
provided by or approved by the Company and the Bank) did not contain an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, and at the time any Rule 424(b) Prospectus was filed with
the Commission and at the Closing Date referred to in Section 2, the
Registration Statement, any preliminary or final Prospectus, any Blue
Sky Application or any Sales Information (as such terms are defined
previously herein or in Section 7 hereof) authorized by the Company or
the Bank for use in connection with the Offerings will not contain an
untrue statement of a material fact or omit to
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Ryan, Beck & Co., Inc.
August __, 1998
Page 5
state a material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading; provided, however, that the representations and warranties
in this Section 4(a) shall not apply to statements in or omissions from
such Registration Statement, Prospectus or Sales Information made in
reliance upon and in conformity with information furnished in writing
to the Company or the Bank by the Agent expressly regarding the Agent
for use under the captions "Market for the Common Stock" and "The
Conversion - Marketing Arrangements. "
(b) The Bank has filed with the OTS the Conversion
Application, including the Prospectus, exhibits, and an amendment or
amendments thereto, as required, which was approved by the OTS; the
Proxy Statement of the Bank, to be dated as of August __, 1998, has
been approved by the OTS; and the Plan has been adopted by both the
Board of Directors of the Company and the Board of Directors of the
Bank.
(c) The Company has filed with the OTS the Holding Company
Application, which was approved by the OTS and, to the best knowledge
of the Company and the Bank, no order has been received by or is
pending before the OTS to prevent, suspend or revoke any approval
thereof.
(d) At the Closing Date, the Company and the Bank will have
completed all conditions precedent to the Conversion and the offer and
sale of the Common Stock in accordance with the Plan, the Conversion
Regulations and all other applicable material laws, regulations,
decisions and orders, including all terms, conditions, requirements and
provisions precedent to the Conversion imposed upon the Company or the
Bank by the Commission and the OTS or any other regulatory authority.
(e) No order has been issued by the Commission, the OTS, the
Federal Deposit Insurance Corporation (the "FDIC"), or any State
regulatory or Blue Sky authority preventing or suspending the use of
the Prospectus and no action by or before any such government entity to
revoke any approval, authorization or order of effectiveness related to
the Conversion is, to the best knowledge of the Bank or the Company,
pending or threatened.
(f) At the date hereof, to the best knowledge of the Company
and the Bank. no person has sought to obtain review of the final action
of the OTS in approving the Plan of Conversion or Holding Company
Application.
(g) At the time of the approval of the Conversion Application
by the OTS (including any amendment or supplement thereto) and at all
times subsequent thereto until the Closing Date, the Conversion
Application complied in all material respects with the Conversion
Regulations. The Prospectus contained in the Conversion Application
(including any amendments or supplements thereto) complied in all
material respects with the Conversion Regulations at the time of the
approval of the Conversion Application by the OTS and the Prospectus
contained in the Conversion Application will comply in all material
respects with such rules and regulations from such time until the
Closing Date.
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Ryan, Beck & Co., Inc.
August __, 1998
Page 6
(h) FinPro, Inc. ("FinPro"), which prepared the Conversion
appraisal dated as of June 12, 1998, described in the Prospectus, is
independent with respect to the Company and the Bank within the meaning
of the Conversion Regulations, is believed by the Company and the Bank
to be experienced and expert in rendering corporate appraisals of
thrift institutions and the Bank believes that FinPro has prepared the
pricing information set forth in the Prospectus in accordance with the
requirements of the Conversion Regulations.
(i) Lewis W. Parker, III, the firm which certified the
financial statements filed as part of the Registration Statement is,
with respect to the Company and the Bank, an independent certified
public accountant as required by the 1933 Act and the 1933 Act
Regulations.
(j) The financial statements included in the Registration
Statement and which are part of the Prospectus present fairly the
financial condition, results of operations, retained earnings and
changes in financial position and statement of cash flows of the Bank,
at and for the dates indicated and the periods specified and comply as
to form in all material respects with the applicable accounting
requirements of the Conversion Regulations and generally accepted
accounting principles. Said financial statements are consistent with
financial statements and other reports filed by the Bank with the OTS
and the FDIC except that accounting principles employed in such
statements and reports (not including the Registration Statement)
conform to requirements of such authorities and not necessarily to
generally accepted accounting principles. The other financial,
statistical, and pro forma information and related notes included in
the Prospectus present fairly the information shown therein on a basis
consistent with the audited financial statements of the Bank included
in the Prospectus, and as to the pro-forma adjustments, the adjustments
made therein have been properly applied on the basis described therein.
(k) There has been no material change in the condition
(financial or otherwise), results of operations or business, including
assets and properties, of the Company and the Bank, taken as a whole,
since the latest date as of which such condition is set forth in the
Registration Statement and the Prospectus, except as set forth therein;
and the capitalization, assets, liabilities, properties and business of
each of the Company and the Bank conforms to the descriptions thereof
contained in the Registration Statement and the Prospectus. There has
been no material transactions entered into by the Company or the Bank,
except those transactions entered into in the ordinary course of
business and those specifically contemplated by the Prospectus,
including the execution of loan documents pertaining to the ESOP.
Neither the Company nor the Bank has any material liabilities of any
kind, contingent or otherwise, except as set forth in the Prospectus.
(l) The Bank is now a federally chartered savings bank in
mutual form of organization and upon the Conversion will become a
federally chartered savings bank in capital stock form of organization,
in both instances duly authorized to conduct its business and own its
property as described in the Registration Statement; the Company and
the Bank have obtained all material licenses, permits and other
governmental authorizations, currently required for the conduct of
their respective businesses; all such licenses, permits and the
governmental authorizations are in full force and effect; and the
Company and the Bank are in all material respects complying with all
laws, rules, regulations and orders applicable to the operation of
their businesses. The Bank does not own equity
<PAGE>
Ryan, Beck & Co., Inc.
August __, 1998
Page 7
securities or any equity interest in any other business enterprise
except as described in the Prospectus. Upon completion of the sale by
the Company of the shares of Common Stock contemplated by the
Prospectus, (i) the Bank will be converted pursuant to the Plan to a
federally chartered stock savings bank, (ii) all of the issued and
outstanding capital stock of the Bank will be owned by the Company, and
(iii) the Company will have no direct subsidiaries other than the Bank.
The Conversion will have been effected in all material respects in
accordance with all applicable statutes, regulations, decisions and
orders; and, except with respect to the filing of certain post-sale,
post-conversion reports and documents, all terms, conditions,
requirements and provisions with respect to the Conversion imposed by
the Commission and the OTS, if any, will have been complied with by the
Company and the Bank in all material respects or appropriate waivers
will have been obtained and all material notice and waiting periods
will have been satisfied, waived or elapsed.
(m) The deposit accounts of the Bank are insured by the
Savings Association Insurance Fund ("SAIF") as administered by the FDIC
up to the maximum amount allowed under law. Upon consummation of the
Conversion, the liquidation account for the benefit of Eligible Account
Holders and Supplemental Eligible Account Holders ("Liquidation
Account") will be duly established in accordance with the requirements
of the Conversion Regulations.
(n) Upon consummation of the Conversion, the authorized,
issued and outstanding equity capital of the Company will be as set
forth in the Registration Statement under the caption "Capitalization,"
and no shares of Common Stock have been or will be issued and
outstanding prior to the Closing Date referred to in Section 2, except
as to the issuance by the Company of shares of Common Stock, if any,
for the purpose of the Company's initial capitalization and conducting
organizational business, which shares of Common Stock shall be
cancelled on the Closing Date; the shares of Common Stock issued in the
Conversion will have been duly and validly authorized for issuance and,
when issued and delivered by the Company pursuant to the Plan against
payment of the consideration calculated as set forth in the Plan and in
the Prospectus, will be duly and validly issued and fully paid and
non-assessable; the issuance of the Common Stock will not violate any
preemptive rights; and the terms and provisions of the Common Stock
will conform in all material respects to the description thereof
contained in the Registration Statement and the Prospectus. To the best
knowledge of the Company and the Bank, upon the issuance of the Common
Stock, good title to the Common Stock will be transferred from the
Company to the purchasers thereof against payment therefor, subject to
such claims as may be asserted against the purchasers thereof by
third-party claimants.
(o) The Company has been duly incorporated and is validly
existing as a I corporation in good standing under the laws of the
State of New Jersey with corporate power and authority to own, lease
and operate its properties and to conduct its business as described in
the Registration Statement and the Prospectus, and the Company is not
required to qualify as a foreign corporation in any jurisdiction where
it has not so qualified.
(p) As of the date hereof and as of the Closing Date, neither
the Company nor the Bank is in violation of its articles of
incorporation, charter or bylaws (and the Bank will not be in violation
of its charter or bylaws in capital stock form upon consummation of the
Conversion); the
<PAGE>
Ryan, Beck & Co., Inc.
August __, 1998
Page 8
consummation of the Conversion, the execution, delivery and performance
of this Agreement and the consummation of the transactions herein
contemplated have been duly and validly authorized by all necessary
corporate action on the part of the Company and the Bank; and this
Agreement has been validly executed and delivered by the Company and
the Bank and is the valid, legal and binding Agreement of the Company
and the Bank enforceable in accordance with its terms, except to the
extent that rights to indemnity hereunder may be limited under
applicable law and subject to bankruptcy, insolvency, reorganization or
other laws relating to or affecting the enforcement of creditors'
rights generally and equitable principles limiting the right to obtain
specific enforcement or similar equitable relief. The consummation of
the transactions herein contemplated will not (i) conflict with or
constitute a breach of, or default under, the articles of
incorporation, charter or bylaws of the Company or the Bank (in either
mutual or capital stock form), or any material contract, lease or other
instrument to which the Company or the Bank is a party or in which the
Company or the Bank has a beneficial interest, or any applicable law,
rule, regulation or order to which the Company or the Bank is subject;
(ii) violate any governmental license or permit or any authorization,
approval, judgment, injunction, writ, decree, order, statute, rule or
regulation applicable to the Company or the Bank; or (iii) with the
exception of the Liquidation Account established in the Conversion,
result in the creation of any lien, charge or encumbrance upon any
property of the Company or the Bank.
(q) The Company and the Bank have all such power, authority,
authorizations, approvals and orders as may be required to enter into
this Agreement, to carry out the provisions and conditions hereof and
to issue and sell the capital stock of the Bank and the Common Stock as
provided in the Plan and as described in the Prospectus, subject to the
final approval of the OTS and to the satisfaction of the conditions of
the OTS approval of the Conversion.
(r) The Company and the Bank have good and marketable title to
all properties and assets which are material to the business of the
Company and the Bank on a consolidated basis and to those properties
and assets described in the Registration Statement and the Prospectus
as owned by them, free and clear of all liens, except such liens as are
described in the Prospectus or are not materially significant or
important in relation to the business of the Company and the Bank on a
consolidated basis; and all of the leases and subleases material to the
business of the Company and the Bank on a consolidated basis under
which the Company or the Bank hold properties, including those
described in the Prospectus, are in full force and effect.
(s) The Company and the Bank are not in violation of any
directive from the Commission, the OTS, the FDIC, or any other agency
to make any material change in the method of conducting their
respective businesses so as to comply in all material respects with all
applicable statutes and regulations (including, without limitation,
regulations, decisions, directives and orders of the Commission, the
FDIC and the OTS) and there is no suit or proceeding, charge,
investigation or action before or by any court, regulatory authority or
governmental agency or body, pending or, to the knowledge of the
Company or the Bank, threatened, which might materially and adversely
affect the Conversion, the performance of this Agreement or the
consummation of the transactions contemplated in the Plan and as
described in the Prospectus or which might result in any material
adverse change in the financial condition, results of operations or
business of the Company and the
<PAGE>
Ryan, Beck & Co., Inc.
August __, 1998
Page 9
Bank taken as a whole or which would materially affect their properties
and assets.
(t) As of the Closing Date, the Bank and the Company shall
have conducted the Conversion in all material respects in accordance
with the Plan, and the Conversion Regulations and in the manner
described in the Prospectus.
(u) The Bank has received an opinion of its special counsel,
Malizia, Spidi, Sloane & Fisch, P.C., with respect to the federal
income tax consequences and with respect to the New Jersey income tax
consequences of the Conversion. The facts and representations upon
which such opinions are based are truthful accurate and complete, and
neither the Bank nor the Company will take any action inconsistent
therewith.
(v) No default exists, and no event has occurred which with
notice or lapse of time, or both, would constitute a default on the
part of the Company or the Bank in the due performance and observance
of any term, covenant or condition of any indenture, mortgage, deed of
trust, note, bank loan or credit agreement or any other instrument or
agreement to which the Company or the Bank is a party or by which any
of them or any of their property is bound or affected in any respect
which, in any such case, is material to the Company and the Bank; such
agreements are in full force and effect, and no other party to any such
agreements has instituted or, to the best knowledge of the Company or
the Bank, threatened any action or proceeding wherein the Company or
the Bank would or might be alleged to be in default thereunder.
(w) Subsequent to the date the Registration Statement is
declared effective by the Commission and prior to the Closing Date,
except as otherwise may be indicated or contemplated therein, neither
the Company nor the Bank will have issued any securities or incurred
any liability or obligation, direct or contingent, for borrowed money,
except borrowings from the same or similar sources indicated in the
Prospectus in the ordinary course of its business. For purposes of this
Section 4(w), obligations for borrowed money do not include deposits.
(x) The Company and the Bank have filed all federal, state and
local tax returns required to be filed and have made timely payments of
all taxes due and payable in respect of such returns and no deficiency
has been asserted with respect thereto by any taxing authority.
(y) To the best knowledge of the Company and the Bank, none of
the Company, the Bank or employees of the Bank has made any payment of
funds of the Company or the Bank as a loan for the purchase of the
Common Stock or made any other payment of funds prohibited by law, and
no funds have been set aside to be used for any payment prohibited by
law except as disclosed in the Prospectus with respect to the ESOP.
(z) Prior to the Conversion, the Bank was not authorized to
issue shares of capital stock; neither the Bank nor the Company has:
(i) issued any securities within the last 18 months (except for notes
to evidence other bank loans and reverse repurchase agreements); (ii)
had any material dealings within the 12 months prior to the date hereof
with any member of the NASD, or any person related to or associated
with such member, other than discussions and meetings relating to the
<PAGE>
Ryan, Beck & Co., Inc.
August __, 1998
Page 10
Conversion and routine purchases and sales of U.S. government
securities; (iii) entered into a financial or management consulting
agreement except as contemplated hereunder; and (iv) engaged any
intermediary between the Agent and the Company or the Bank in
connection with the offering of Common Stock, and no person is being
compensated in any manner for such service.
(aa) Neither the Company nor the Bank is required to be
registered under the Investment Company Act of 1940, as amended.
(bb) Except for information provided in writing to the Company
or Bank by the Agent for use in the Prospectus, the Company and the
Bank have not relied upon the Agent or its legal or other advisors for
any legal, tax or accounting advice in connection with the Conversion
(cc) To the best knowledge of the Company and the Bank, each
of them is in compliance in all material respects with all laws, rules
and regulations relating to environmental protection except where such
failure would not have a material adverse effect on the financial
condition of the Company and the Bank taken as a whole, and neither the
Company nor the Bank has been notified or is otherwise aware that
either of them is potentially liable, or is considered potentially
liable, under the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended, or any similar state law. No
action, suits, regulatory investigations or other proceedings are
pending, or, to the best knowledge of the Company and the Bank,
threatened against the Company or the Bank relating to environmental
protection, nor does the Company or the Bank have any reason to believe
any such proceedings may be brought against either of them. To the best
knowledge of the Company and the Bank, no disposal, release or
discharge of hazardous or toxic substances, pollutants or contaminants,
including petroleum and gas products, as any of such terms may be
defined under federal, state or local law, has occurred on, in, at or
about any of the facilities or properties of the Company or the Bank.
(dd) No labor dispute with the employees of the Company or the
Bank exists or, to the knowledge of the Company or the Bank, is
imminent.
(ee) All of the loans represented as assets on the most recent
financial statements or selected financial information of the Bank
included in the Prospectus meet or are exempt from all requirements of
federal, state and local law pertaining to lending, including, without
limitation, truth in lending (including the requirements of Regulations
Z and 12 C.F.R. Part 226), real estate settlement procedures, consumer
credit protection, equal credit opportunity and all disclosure laws
applicable to such loans, except for violations which, if asserted,
would not result in a material adverse effect on the financial
condition, results of operations or business of the Company and the
Bank taken as a whole. Any certificate signed by an officer of the Bank
or of the Company and delivered to the Agent or its counsel that refers
to this Agreement shall be deemed to be a representation and warranty
by the Bank or the Company to the Agent as to the matters covered
thereby with the same effect as if such representation and warranty
were set forth herein.
SECTION 4A. Representations and Warranties of Agent. The Agent
represents and warrants to the Company and the Bank as follows:
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Ryan, Beck & Co., Inc.
August __, 1998
Page 11
(a) The Agent is a corporation and is validly existing in good
standing under the laws of the State of New Jersey and under the rules
and regulations of the Commission and the NASD with full power and
authority to provide the services to be furnished to the Company and
the Bank hereunder.
(b) The Agent is registered as a broker-dealer with the
Commission and the NASD.
(c) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly and
validly authorized by all necessary action on the part of the Agent,
and this Agreement has been duly and validly executed and delivered by
the Agent and is the legal, valid and binding agreement of the Agent,
enforceable in accordance with its terms (except as the enforceability
may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws relating to or affecting the enforcement of
creditors' rights generally, and subject, as to the enforcement of
remedies, including the remedy to specific performance and injunctive
and other forms of equitable relief which may be subject to certain
equitable defenses and to the discretion of the court before which any
proceeding may be brought, to general principles of equity regardless
of whether the enforceability is considered in a proceeding at law or
in equity).
(d) Each of the Agent and its employees, agents and
representatives who are assigned to the transaction contemplated hereby
have all licenses, approvals and permits necessary, to perform such
services; and the Agent is a registered selling agent in the
jurisdictions in which it is required to be registered in order to
perform its obligations under this Agreement and will remain registered
in such jurisdictions until the Conversion is consummated or
terminated.
SECTION 5. Covenants of the Company and Bank. The Company and the Bank
hereby jointly and severally covenant with you as follows.
(a) The Company has filed the Registration Statement with the
Commission. The Company will not, at any time before the Registration
Statement is declared effective by the Commission, file any amendment
to such Registration Statement without providing you and your counsel
an opportunity to review such amendment and to reasonably object in
writing. The Company will not, at any time after the date the
Registration Statement is declared effective, file any amendment or
supplement to the Registration Statement without providing you and your
counsel an opportunity to review such amendment or to which amendment
you or your counsel shall reasonably object.
(b) The Company and the Bank will use their best efforts to
cause the Registration Statement to be declared effective by the
Commission and the Conversion Application to be approved by the OTS and
will immediately upon receipt of any information concerning the events
listed below notify you: (i) when the Registration Statement has become
effective; (ii) of the receipt of any comments from the Commission, the
OTS, or any other governmental entity with respect to the Conversion or
the transactions contemplated by this Agreement; (iii) of the request
by the Commission, the OTS, or any other governmental entity for any
amendment or supplement to the
<PAGE>
Ryan, Beck & Co., Inc.
August __, 1998
Page 12
Registration Statement or for additional information; (iv) of the
issuance by the Commission, the OTS, or any other governmental entity
of any order or other action suspending the effectiveness of the
Registration Statement or the approval of the Conversion Application or
the use of the Registration Statement or the Prospectus or any other
filing of the Company and the Bank under the Conversion Regulations,
the 1933 Act, 1933 Act Regulations or other applicable law, or the
threat of any such action; (v) the issuance by the Commission, the OTS,
or any other state authority of any stop order suspending the
effectiveness of the Registration Statement or the Conversion
Application or of the initiation or threat of initiation or threat of
any proceedings for such purposes; or (vi) of the occurrence of any
event mentioned in paragraph (g) below. The Company and the Bank will
make every reasonable effort to prevent the issuance by the Commission,
the OTS, or any other state authority of any such order and, if any
such order shall at any time be issued, to obtain the lifting thereof
at the earliest possible time.
(c) The Company will provide you with notice of its intention
to file and reasonable time to review prior to filing any amendment or
supplement to the Conversion Application, the Holding Company
Application or to the Registration Statement or the Prospectus
(including a prospectus filed pursuant to Rule 424 which differs from
the prospectus on file at the time the Registration Statement and any
amendments thereto become effective) and will not file any such
amendment or supplement to which you shall reasonably object or which
shall be reasonably objected to by your counsel in writing.
(d) The Company and the bank will deliver to you and to your
counsel two conformed copies of each of the following documents, with
all exhibits: The Conversion Application and the Holding Company
Application, as originally filed and of each amendment or supplement
thereto, and the Registration Statement, as originally filed and each
amendment or supplement thereto.
(e) The Company and the Bank will deliver to you such number
of copies of the Prospectus, as amended or supplemented, as you may
reasonably request. The Company authorizes the Agent to use the
Prospectus (as amended or supplemented, if amended or supplemented) for
any lawful manner in connection with the sale of the Common Stock by
the Agent.
(f) During the periods prior to the Closing Date, when the
Prospectus is required to be delivered and subsequent to the Closing
Date, the Company and the Bank will comply, at their own expense, with
any and all terms, conditions requirements and provisions with respect
to the Conversion and the transactions contemplated thereby imposed
upon them by the Commission and the OTS, by applicable state law or the
Conversion Regulations, and by the 1933 Act, the 1933 Act Regulations,
the 1934 Act and the rules and regulations of the Commission
promulgated under such statutes, including, without limitation,
Regulation M under the 1934 Act, in each case as from time to time in
force, in accordance with the provisions hereof and the Prospectus.
(g) If, at any time during the period when the Prospectus
relating to the Shares is required to be delivered, any event relating
to or affecting the Company or the Bank shall occur, as a result of
which it is necessary or appropriate, in the opinion of counsel for the
Company and the Bank to amend or supplement the Registration Statement
or Prospectus in order to make the
<PAGE>
Ryan, Beck & Co., Inc.
August __, 1998
Page 13
Registration Statement or Prospectus not misleading in light of the
circumstances existing at the time it is delivered to a purchaser, the
Company and the Bank will, at their expense, forthwith prepare, file
with the Commission and furnish to you a reasonable number of copies of
an amendment or amendments of, or a supplement or supplements to, the
Registration Statement or Prospectus (in form and substance
satisfactory to you and your counsel after a reasonable time for
review) which will amend or supplement the Registration Statement or
Prospectus so that as amended or supplemented it will not contain any
untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in light of the
circumstances existing at the time the Prospectus is delivered to a
purchaser, not misleading.
(h) The Company and the Bank will take all necessary actions,
in cooperation with you, and furnish to whomever the Agent may direct
such information as may be required to qualify or register the Common
Stock and sale by the Company under the applicable securities or Blue
Sky laws of such jurisdictions as you and the Company and the Bank and
its counsel may agree upon; provided, however, that the Company shall
not be obligated to file any general consent to service of process or
to qualify to do business in any jurisdiction in which it is not so
qualified. In each jurisdiction where any of the Common Stock shall
have been qualified or registered as above provided, the Company will
make and file such statements and reports as are or may be required by
the laws of such jurisdiction.
(i) The Company will not sell or issue, contract to sell or
otherwise dispose of, for a period of 90 days after the date hereof,
without your prior written consent, any shares of Common Stock other
than the Common Stock or other than in connection with any plan or
arrangement described in the Prospectus.
(j) During the period during which the Company's Common Stock
is registered under the 1934 Act, the Company will furnish to its
stockholders as soon as practicable after the end of each fiscal year
an annual report (including a consolidated balance sheet and statements
of consolidated income, stockholders' equity or cash flow statement of
the Company and its subsidiaries as at the end of and for such year,
certified by independent public accountants in accordance with
Regulation S-X under the 1933 Act).
(k) During the period of three years from the date hereof, the
Company will furnish to you: (i) as soon as available, a copy of each
report of the Company furnished generally to stockholders of the
Company or furnished to or filed with the Commission under the 1934 Act
or any national securities exchange or system on which any class of
securities of the Company is listed or quoted, (including, but not
limited to, reports on Forms 10-KSB, 10-QSB and 8-K and all proxy
statements and annual reports to stockholders), a copy of each other
report of the Company mailed to its stockholders or filed with the
Commission or any national securities exchange or system on which any
class of securities of the Company is listed or quoted, each press
release and material news items and articles released by the Company or
the Bank and (ii) from time to time, such other public information
concerning the Company and the Bank as you may reasonably request.
(l) The Company and the Bank will use the net proceeds
from the sale of the Common
<PAGE>
Ryan, Beck & Co., Inc.
August __, 1998
Page 14
Stock substantially in the manner set forth in the Prospectus under the
caption "Use of Proceeds."
(m) Other than as permitted by the Conversion Regulations, the
1933 Act, the 1933 Act Regulations and the laws of any state in which
the shares of Common Stock are qualified for sale, neither the Company
nor the Bank will distribute any prospectus, offering circular or other
offering material in connection with the offer and sale of the Common
Stock.
(n) The Company will make generally available to its security
holders as soon as practicable, but not later than 60 days after the
close of the period covered thereby, an earnings statement (in form
complying with the provisions of Rule 158 of the regulations
promulgated under the 1933 Act) covering a twelve-month period
beginning not later than the first day of the Company's fiscal quarter
next following the effective date (as defined in said Rule 158) of the
Registration Statement.
(o) The Company will promptly register the Common Stock
under Section 12(g) of the 1934 Act.
(p) The Company will timely file with the Commission such
reports concerning the sales of Common Stock sold in the Conversion and
the use of the proceeds thereof as required by Rule 463 under the 1933
Act.
(q) The Company will use its best efforts to encourage and
assist a marketmaker to establish and maintain a market for the Common
Stock sold in the Conversion on the Bulletin Board of the NASDAQ Stock
Market.
(r) The Bank will maintain appropriate arrangements for
depositing all funds received from persons mailing subscriptions for or
orders to purchase Common Stock in the Subscription Offering and
Community Offering on an interest bearing basis at the rate described
in the Prospectus until the Closing Date and satisfaction of all
conditions precedent to the release of the Bank's obligation to refund
payments received from persons subscribing for or ordering Common Stock
in the Subscription Offering and Community Offering in accordance with
the Plan as described in the Prospectus or until refunds of such funds
have been made to the persons entitled thereto in accordance with the
Plan and as described in the Prospectus. The Bank will maintain such
records of all funds received to permit the funds of each subscriber to
be separately insured by the SAIF (to the maximum extent allowable) and
to enable the Bank to make appropriate refunds of such funds in the
event that such refunds are required to be made in accordance with the
Plan and as described in the Prospectus.
(s) The Company will take such actions and furnish such
information as are reasonably requested by the Agent in order for Ryan,
Beck to ensure compliance with the NASD's "Interpretation to Free
Riding and Withholding."
(t) The Bank will not amend the Plan without the Agent's prior
written consent in any manner that, in the opinion of the Agent, would
affect the sale of the Common Stock or the terms
<PAGE>
Ryan, Beck & Co., Inc.
August __, 1998
Page 15
of this Agreement, which approval shall not be unreasonably withheld.
(u) The Company and the Bank will use all reasonable efforts
to comply with, or cause to be complied with, the conditions precedent
to the several obligations of the Agent specified in Section 9 hereof,
unless such condition is waived by the Agent.
SECTION 6. Payment of Expenses. The Company and the Bank jointly and
severally agree to pay all expenses incident to the performance of the
obligations of the Company and the Bank under this Agreement, including the
following: (i) the preparation, issuance and delivery of certificates for the
Common Stock to the subscribers and purchasers in the Offerings; (ii) the fees
and disbursements of the Company's and the Bank's counsel, accountants and other
advisors; (iii) the qualification of the Common Stock under all applicable
securities or Blue Sky laws, including filing fees and the reasonable fees and
disbursements of counsel in connection therewith and in connection with the
preparation of a Blue Sky Survey; (iv) the printing and delivery to you in such
quantities as you shall reasonably request of copies of the Registration
Statement, the Prospectus and the Conversion Application and Holding Company
Application as originally filed and as amended or supplemented and all other
documents in connection with the Conversion and this Agreement; (v) the filing
fees incurred in connection with the review of the Registration Statement, the
Conversion Application, or any other application, form, or filing by the
Commission, the OTS and the NASD; (vi) the fees for listing the shares on the
OTC Bulletin Board of the Nasdaq Stock Market; (vii) the fees and expenses
relating to the appraisal; (viii) the fees and expenses relating to advertising
expenses, temporary personnel expenses, conversion center expenses, investor
meeting expenses, and other miscellaneous expenses relating to the marketing by
the Agent of the Common Stock; and (ix) the cost of printing all stock
certificates and all other documents applicable to the Conversion and the fees
and charges of any transfer agent, registrar and other agent. In the event that
the Agent incurs any of the above expenses on behalf of the Company or the Bank,
the Company or the Bank, as the case may be, shall pay or reimburse the Agent
for such reasonable fees and expenses regardless of whether the Conversion is
successfully completed. The Agent will not incur any single expense exceeding
$1,000 pursuant to this paragraph without the prior authorization of the Company
or the Bank. The parties hereto acknowledge that such expense limitations may
also be exceeded in the event of a material delay in the offering that requires
an update of financial information contained in the Registration Statement for a
period later than March 31, 1998.
SECTION 7. Indemnification.
(a) The Bank and the Company jointly and severally agree to indemnify
and hold harmless the Agent, its officers, directors, agents, servants and
employees and each person, if any, who controls you within the meaning of
Section 15 of the 1933 Act or Section 20(a) of the 1934 Act, against any and all
loss, liability, claim, damage or expense whatsoever (including but not limited
to settlement expenses, subject to the limitation in the last sentence of
paragraph (c) below), joint or several, that the Agent or any of them may suffer
or to which the Agent or any of them may become subject under all applicable
federal and state laws or otherwise, and to promptly reimburse the Agent and any
such persons upon written demand for any expenses (including reasonable fees and
disbursements of counsel) incurred by the Agent or any of them in connection
with investigating, preparing or defending any actions, proceedings or claims
(whether commenced or threatened) to the extent such losses, claims, damages,
liabilities or actions: (i) arise out of or are based upon any untrue statement,
or alleged untrue statements, of any material fact contained in the
<PAGE>
Ryan, Beck & Co., Inc.
August __, 1998
Page 16
Conversion Application, Holding Company Application or the Registration
Statement (the "Applications"), (or any amendment or supplement thereto), the
Prospectus (or any amendment or supplement thereto), the Proxy Statement (or any
amendment or supplement thereto), or any Blue Sky application or other
instrument or document of the Bank or based upon written information supplied by
the Bank or their representatives (including counsel) in any state or
jurisdiction to register or qualify any or all of the shares of Common Stock
under the securities laws thereof (or any amendment or supplement thereto)
(collectively, the "Blue Sky Application"), or any application or other
document, advertisement, or communication prepared, made or executed by or on
behalf of the Bank with its consent after review ("Sales Information") or based
upon written information or statements furnished or made by or on behalf of the
Bank or the Company, whether or not filed in any jurisdiction in order to
qualify or register the shares of Common Stock under the securities law thereof;
(ii) arise out of, or are based upon, the omission or alleged omission to state
in any of the foregoing documents or information, a material fact required to be
stated therein or necessary to make the statements herein, in light of the
circumstances under which they were made, not misleading; or (iii) arise from
any theory of liability whatsoever relating to or arising from or based upon any
Application (or any amendment or supplement thereto), the Prospectus (or any
amendment or supplement thereto), the Proxy Statement (or any amendment or
supplement thereto), Blue Sky Application or Sales Information or other
documentation prepared by the Bank or the Company and distributed in connection
with the Offerings; except to the extent such losses, claims, damages,
liabilities or actions arise out of or are based upon any untrue material
statements or alleged untrue material statements in, or material omission or
alleged material omission from an Application (or any amendment or supplement
thereto), the Prospectus (or any amendment or supplement thereto), the Proxy
Statement (or any amendment or supplement thereto), Blue Sky Application, or
Sales Information made in reliance upon and in conformity with information
furnished in writing to the Bank by the Agent regarding the Agent expressly for
use in the Prospectus, which the Bank and the Company acknowledge includes only
the information contained in the Prospectus under the captions "Market for
Common Stock" and "The Conversion-Marketing Arrangements"; nor shall
indemnification be required for material oral misstatements to a purchaser of
shares of Common Stock made by the Agent, which are not based upon information
provided by the Bank orally or in writing or based upon information contained in
the Application (or any amendment or supplement thereto), the Prospectus (or any
amendment or supplement thereto), the Proxy Statement (or any amendments or
supplements thereto), Blue Sky Application or any Sales Information distributed
in connection with the Conversion. In addition, neither the Company nor the Bank
will be liable under the foregoing indemnification provision to the extent that
any loss, claim, damage, liability or action is found in a final judgment by a
court to have resulted from the Agent's bad faith or negligence in performing
the services to be performed by the Agent under this Agreement. Notwithstanding
the foregoing, the indemnification provided for in this paragraph (a) shall not
apply to the Bank to the extent that such indemnification by the Bank would
constitute a covered transaction under Section 23A of the Federal Reserve Act.
For purposes of this section, the term "expense" shall include, but not be
limited to, counsel fees and costs, court costs, out-of-pocket costs and
compensation for the time spent by the Agent's directors, officers, employees
and counsel according to his or her normal hourly billing rates. The foregoing
agreement to indemnify shall be in addition to any liability the Company may
otherwise have to the Agent or the persons entitled to the benefit of these
indemnification provisions.
(b) The Agent jointly and severally agrees to indemnify and hold
harmless the Bank, the Company, the directors, officers, agents, servants and
employees of each of them, and each person, if any, who controls the Bank or the
Company within the meaning of Section 15 of the 1933 Act or Section 20(a)
<PAGE>
Ryan, Beck & Co., Inc.
August __, 1998
Page 17
of the 1934 Act against any and all loss, liability, claim, damage or expense
whatsoever (including but not limited to settlement expenses), joint or several,
which they, or any of them, may suffer or to which they, or any of them, may
become subject under all applicable federal and state laws or otherwise, and to
promptly reimburse the Bank or the Company, and any such persons upon written
demand for any expenses (including reasonable fees and disbursements of counsel)
incurred by them, or any of them, in connection with investigating, preparing or
defending any actions, proceedings or claims (whether commenced or threatened)
to the extent such losses, claims, damages, liabilities or actions: (i) arise
out of or are based upon any untrue statement or alleged untrue statement of a
material fact contained in any Application (or any amendment or supplement
thereto) or the Prospectus (or any amendment or supplement thereto), the Proxy
Statement (or any amendments or supplements thereto), or the Sales Information;
or (ii) arise out of or which are based upon the omission or alleged omission to
state in any of the foregoing documents a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided, however,
that its obligations under this Section 7(b) shall exist only if, and only to
the extent, that such untrue statement or alleged untrue statement was made in,
or such material fact or alleged material fact was omitted from an Application
(or any amendment or supplement thereto), the Prospectus (or any amendment or
supplement thereto), the Proxy Statement (or any amendments or supplements
thereto), or the Sales Information in reliance upon and in conformity with
information furnished in writing to the Bank by the Agent or its representatives
(including counsel) expressly for use in the Prospectus, which the Bank and the
Company acknowledge includes only the information contained in the Prospectus
under the captions "Market for the Common Stock" and "The Conversion-Marketing
Arrangements." In addition, the Agent will not be liable under the foregoing
indemnification provision to the extent that any loss, claim, damage, liability
or action is found in a final judgment by a court to have resulted from the
Bank's bad faith or negligence.
(c) Each indemnified party shall give prompt written notice to each
indemnifying party of any action, proceeding, claim (whether commenced or
threatened), or suit instituted against it in respect of which indemnity may be
sought hereunder, but failure to so notify an indemnifying party shall not
relieve it from any liability which it may have on account of this Section 7 and
Section 8 herein. An indemnifying party may participate at its own expense in
the defense of such action. In addition, if it so elects within a reasonable
time after receipt of such notice, an indemnifying party, jointly with any other
indemnifying parties receiving such notice, may assume the defense of such
action with counsel chosen by it and reasonably acceptable to the indemnified
parties that are defendants in such action, unless such indemnified parties
reasonably object to such assumption on the ground that there may be legal
defenses available to them that are different from or in addition to those
available to such indemnifying party. If an indemnifying party assumes the
defense of such action, the indemnifying parties shall not be liable for any
fees and expenses of counsel for the indemnified parties incurred thereafter in
connection with such action, proceeding or claims, other than reasonable costs
of investigation. In no event shall the indemnifying parties be liable for the
fees and expenses of more than one firm of attorneys for the indemnified parties
(unless an indemnified party or parties shall have reasonably concluded that
there may be defenses available to it or them which are different from or
additional to those of the other indemnified parties) in connection with any one
action, proceeding or claim or separate but similar or related actions,
proceedings or claims in the same jurisdiction arising out of the same general
allegations or circumstances. The indemnifying party shall not be liable for any
settlement of such action, proceeding or suit effected without its prior written
consent.
<PAGE>
Ryan, Beck & Co., Inc.
August __, 1998
Page 18
(d) The agreement contained in this Section 7 and in Section 8 hereof
and the representations and warranties of the Bank and the Company set forth in
this Agreement shall remain operative and in full force and effect regardless
of: (i) any investigation made by or on behalf of the Agent or its officers,
directors or controlling persons, agents or employees or by or on behalf of the
Bank, the Company or any officers, directors or controlling persons, agents or
employees of the Bank or the Company; (ii) delivery of and payment hereunder for
the shares of Common Stock; or (iii) any termination of this Agreement.
SECTION 8. Contribution. If the indemnification of an indemnified party
provided for in Section 7 of this Agreement is for any reason held
unenforceable, the Bank or the Company and the Agent agree to contribute to the
losses, claims, damages and liabilities for which such indemnification is held
unenforceable: (i) in such proportion as is appropriate to reflect the relative
benefits to the Bank or the Company, on the one hand, and the Agent, on the
other hand, of the Conversion as contemplated (whether or not the Conversion is
consummated), or (ii) if the application provided for in clause (i) is for any
reason held unenforceable, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of the Bank or the Company, on the one hand, and the Agent, on the other
hand, as well as other equitable considerations. The Bank or the Company agrees
that for the purposes of this Section 8, the relative benefits of the Bank or
the Company and the Agent of the Conversion as contemplated shall be deemed to
be in the same proportion that the total net proceeds from the Conversion
received by the Bank or the Company in connection with the Conversion bear to
the total fees paid or to be paid to the Agent under this Agreement. No person
found guilty of any fraudulent misrepresentation (within the meaning of Section
11(f) of the 1933 Act) shall be entitled to contribution from any person who was
not found guilty of such fraudulent misrepresentation. To the extent required by
law, this Section 8 is subject and limited by the provisions of Section 23A of
the Federal Reserve Act ("Section 23A"). For purposes of this Section 8, each of
the Agent's officers and directors and each person, if any, who controls the
Agent within the meaning of the 1933 Act and the 1934 Act shall have the same
rights to contribution as the Agent, and each person, if any, who controls the
Bank or the Company within the meaning of the 1933 Act and the 1934 Act, and
each officer, director and each person, if any, who controls the Bank or the
Company, shall have the same rights to contribution as the Bank and the Company.
Any party entitled to contribution shall promptly after receipt of notice of
commencement of any action, suit, claim or proceeding against such party in
respect to which a claim for contribution may be made against another party,
notify such other party, but the omission to so notify such party shall not
relieve the party from whom contribution may be sought from any other obligation
it may have hereunder or otherwise than under this Section 8. The Bank, the
Company and the Agent agree that it would not be just and equitable if
contribution pursuant to this Section 8 were determined by pro rata allocation
or by other method of allocation that does not take into account the equitable
considerations referred to above in this Section 8. It is expressly agreed that
the Agent shall not be required to contribute to the Bank or the Company for any
loss, liability, claim, damage or expense any amount that in the aggregate
exceeds the amount paid to the Agent under this Agreement.
SECTION 9. Conditions of Your Obligations. Your obligations hereunder,
as to the Common Stock to be delivered at the Closing Date, are subject, in your
discretion, to the condition that all representations and warranties and other
statements of the Bank and the Company herein are, at and as of the commencement
of each of the Offerings and at and as of the Closing Date, true and correct in
all material respects, the condition that the Bank and the Company shall have
performed in all material respects all of its obligations hereunder to be
performed on or before such dates, and to the following further conditions.
<PAGE>
Ryan, Beck & Co., Inc.
August __, 1998
Page 19
(a) The Registration Statement shall have been declared effective by
the Commission not later than 5:30 p.m. on the August __, 1998, or with
your consent at a later time and date; and at the Closing Date no stop
order suspending the effectiveness of the Registration Statement or the
consummation of the Conversion shall have been issued under the 1933
Act or proceedings therefor initiated or threatened by the Commission
or any state authority, and no order or other action suspending the
effectiveness of the Prospectus or the consummation of the Conversion
shall have been issued or proceedings therefor initiated or threatened
by the Commission, any state authority, the OTS or the FDIC.
(b) At the Closing Date you shall have received the following
documents, certificates or opinions.
(1) The favorable opinion, dated as of the Closing Date
addressed to the Agent and for its and its counsel's benefit,
of Malizia, Spidi, Sloane & Fisch, P.C., special counsel for
the Company and the Bank, in form and substance satisfactory
to the Agent and its counsel, that opines as to legal matters
set forth below.
(i) The Company has been duly incorporated and is
validly existing as a corporation in good standing
under the laws of the State of New Jersey. The Bank
is duly organized and validly exists as a federally
chartered savings bank under the laws of the United
States of America; the Bank has duly adopted a
federal stock charter and by-laws related thereto to
become effective upon consummation of the Conversion;
and upon the Conversion will become a duly organized
and validly existing federally chartered savings bank
in the capital stock form of organization.
(ii) The Company and the Bank each has the corporate
power and authority to own, lease and operate its
properties and to conduct its business as described
in the Registration Statement and Prospectus; and the
Company is qualified to do business only in New
Jersey, which is, to our knowledge, the only state in
which it is doing business.
(iii) The deposit accounts of the Bank are insured by
the SAIF up to applicable limits in accordance with
applicable regulations; and, to such counsel's
knowledge, no proceeding for the termination or
revocation of such insurance is pending or
threatened. The Bank is a member of the Federal Home
Loan Bank of New York.
(iv) Upon consummation of the Conversion, the
authorized, issued and outstanding capital stock of
the Company will be within the range set forth in the
Registration Statement and the Prospectus under the
caption "Capitalization" and, to such counsel's
knowledge, no shares of Common Stock have been issued
prior to the Closing Date; the shares of Common Stock
to be sold in the Offerings have been duly and
validly authorized for issuance and, when issued and
delivered by the Company against payment therefor as
set forth in the Plan and stated on the cover page of
the Prospectus, will be duly and validly issued and
fully paid and
<PAGE>
Ryan, Beck & Co., Inc.
August __, 1998
Page 20
nonassessable; and the issuance of the shares of
Common Stock is not subject to statutory preemptive
rights.
(v) Upon consummation of the Conversion, all of the
issued and outstanding capital stock of the Bank will
be duly authorized and validly issued and fully paid
and nonassessable, and all such capital stock will be
owned of record and, to such counsel's knowledge,
beneficially, by the Company free and clear of any
security interest, mortgage, pledge, lien,
encumbrance, claim or equity
(vi) The Company's acquisition of the Bank has been
approved by the OTS and, to such counsel's knowledge,
no action has been taken or is pending or threatened
to revoke such approval.
(vii) The Conversion Application, as amended or
supplemented, if amended or supplemented, as filed
with the OTS, complied as to form in all material
respects with the requirements of the HOLA and the
Conversion Regulations. The OTS has authorized the
Conversion, subject to the satisfaction of the
conditions set forth in its approval and, to such
counsel's knowledge, no action has been taken or is
pending or threatened to revoke such authorization.
(viii) The OTS has approved the Plan and to such
counsel's knowledge, such approval has not been
revoked; to such counsel's knowledge, the Company and
the Bank have conducted the Conversion in all
material respects in accordance with applicable
requirements of the Conversion Regulations,
applicable requirements of the Conversion
Regulations, applicable federal law and the Plan,
including all material applicable terms, conditions,
requirements and conditions precedent to the
Conversion imposed upon the Company and the Bank by
the Commission and the OTS; to such counsel's
knowledge no order has been issued by the Commission
or the OTS to suspend the Offerings and no action for
such purpose has been instituted or, to such
counsel's knowledge, threatened by the Commission or
the OTS; and, to the best of such counsel's
knowledge, no person has sought to obtain review of
the final action of the OTS in approving the
Conversion Application or the Plan.
(ix) This Agreement has been duly authorized,
executed and delivered by the Company and the Bank.
(x) The Registration Statement is effective under the
1933 Act and no stop order suspending effectiveness
has been issued under the 1933 Act and, to such
counsel's knowledge, no proceedings therefor have
been initiated or threatened by the Commission.
(xi) Subject to satisfaction of conditions of the OTS
in connection with its approval of the Conversion
Application and Holding Company Application, no
further approval, authorization, consent or other
order of any federal or state board
<PAGE>
Ryan, Beck & Co., Inc.
August __, 1998
Page 21
or body is required in connection with the execution
and delivery of this Agreement, the issuance of the
shares of Common Stock and the consummation of the
Conversion, except as may be required under the
securities or Blue Sky laws of various jurisdictions
as to which counsel need render no opinion.
(xii) At the time the Registration Statement became
effective, (i) the Registration Statement (as amended
or supplemented, if so amended or supplemented)
(other than the financial statements, stock valuation
information and other financial and statistical data
included therein, as to which no opinion need be
rendered), complied as to form in all material
respects with the requirements of the 1933 Act and
the 1933 Act Regulations and (ii) the Prospectus
(other than the financial statements, stock valuation
information and other financial and statistical data
included therein, as to which no opinion need be
rendered) complied as to form in all material
respects with the requirements of the Conversion
Regulations and applicable banking and federal
securities law.
(xiii) The information in the Registration Statement
and Prospectus under the captions, "The Conversion",
"Regulation", "Taxation", "Restrictions on
Acquisition of Farnsworth Bancorp, Inc." and
"Description of Capital Stock" to the extent that it
constitutes matters of law, summaries of legal
matters, documents or proceedings, or legal
conclusions, has been reviewed by such counsel and is
correct in all material respects; provided, however,
that as it relates to the information under the
caption "Taxation" the opinion need only address
matters of Federal law.
(xiv) The terms and provisions of the Common Stock
conform in all material respects to the description
thereof contained in the Prospectus, and the form of
certificate used to evidence the shares of Common
Stock conforms to New Jersey law.
(xv) To such counsel's knowledge, there are no
material contracts, indentures, loan agreements,
notes, leases or other instruments required to be
described or referred to in the Registration
Statement and Prospectus or to be filed as exhibits
thereto other than those described or referred to
therein or filed as exhibits thereto.
(xvi) To such counsel's knowledge, the Company and
the Bank have obtained all material federal licenses,
permits and other governmental authorizations
currently required under HOLA for the conduct of
their respective businesses as described in the
Prospectus or the Registration Statement, and to such
counsel's knowledge none of such material licenses,
permits and other governmental authorizations have
been revoked.
(xvii) The Plan has been duly authorized by the Board
of Directors of the Company and the Board of
Directors of the Bank and, effective upon
consummation of the Conversion, the Bank will be
authorized to issue its capital
<PAGE>
Ryan, Beck & Co., Inc.
August __, 1998
Page 22
stock to the Company
(xviii) To such counsel's knowledge, the Company is
not in violation of its articles of incorporation or
in default in the performance or observance of any
obligation, agreement, covenant or condition
contained in any contract, indenture, mortgage, loan
agreement, note, lease or other instrument described
in the Prospectus or filed as an exhibit to the
Registration Statement except for such defaults or
violations which would not have a material adverse
impact on the financial condition or results of
operations of the Company and the Bank taken as a
whole; the execution and delivery of this Agreement,
the incurrence of the obligations herein set forth
and the consummation of the transactions contemplated
herein have been duly authorized by all necessary
corporate action on the part of the Company and will
not conflict with or constitute a breach of, or
default under, or result in the creation or
imposition of any material lien, charge or
encumbrance upon any property or assets of the
Company pursuant to any material contract, indenture,
loan agreement, note, lease or other instrument
described in the Prospectus or filed as an exhibit to
the Registration Statement, nor will such action
result in any violation of the provisions of the
articles of incorporation or bylaws of the Company.
(xix) To such counsel's knowledge, the Bank is not in
violation of its federal mutual charter (and the Bank
will not be in violation of its charter in stock form
upon consummation of the Conversion) or in default in
the performance or observance of any obligation,
agreement, covenant or condition contained in any
material contract, indenture, loan agreement, note,
lease or other instrument described in the Prospectus
or filed as an exhibit to the Registration Statement
except for such defaults or violations which would
not have a material adverse impact on the financial
condition or results of operations of the Company and
the Bank taken as a whole; the execution and delivery
of this Agreement, the incurrence of the obligations
herein set forth and the consummation of the
transaction contemplated herein, will not conflict
with or constitute a breach of, or default under, or
result in the creation or imposition of any material
lien, charge or encumbrance upon any property or
assets of the Bank pursuant to any material contract
indenture, loan agreement, note, lease or other
instrument, described in the Prospectus or filed as
an exhibit to the Registration Statement, nor will
such action result in any violation of the provisions
of the charter or bylaws of the Bank.
(xx) To such counsel's knowledge, the Company and the
Bank are not in violation of any written directive
from the OTS or the FDIC to make any material change
in the method of conducting their businesses.
(xxi) Based on the certificate of the inspector of
election, the Plan has been duly adopted by the
required vote of the members of the Bank.
<PAGE>
Ryan, Beck & Co., Inc.
August __, 1998
Page 23
In rendering such opinion, such counsel may rely (A)
as to matters involving the application of laws of any
jurisdiction or the United States, to the extent such counsel
deems proper and specified in such opinion, upon the opinion
of other counsel of good standing (providing that such counsel
states that the Agent and its counsel are justified in relying
upon such specified opinion or opinions), and (B) as to
matters of fact, to the extent such counsel deems proper, on
certificates of responsible officers of the Company and the
Bank and public officials.
(2) The favorable opinion, dated as of the Closing Date and
addressed to Ryan Beck and for its benefit, of
___________________, the Bank's local counsel, in form and
substance to the effect that:
(i) The Bank is duly qualified to do business only in
New Jersey, which is, to our knowledge, the only
state in which it is doing business.
(ii) There are no legal or governmental proceedings
pending or, to such counsel's knowledge, threatened
against the Company or the Bank, other than those
disclosed in the Registration Statement, and all
pending legal and governmental proceedings to which
the Company or the Bank is the subject which are not
disclosed in the Registration Statement, including
ordinary routine litigation incidental to the
business, are, considered in the aggregate, not
material.
(iii) To such counsel's knowledge, the Company and
the Bank have obtained all material state and local
licenses, permits and other governmental
authorizations currently required for the conduct of
their respective businesses as described in the
Registration Statement and Prospectus, and to such
counsel's knowledge, all such licenses, permits and
other governmental authorizations are in full force
and effect, and the Company and the Bank are in all
material respects complying therewith.
(iv) To the best of such counsel's knowledge, the
Company and the Bank have title to all properties and
assets which are material to the business of the
Company and the Bank, respectively, and to those
properties and assets described in the Registration
Statement as owned by them, free and clear of all
liens, charges, encumbrances or restrictions, except
such as are described in the Registration Statement
(including the Liquidation Account) or are not
material in relation to the business of the Company
and the Bank considered as one enterprise
(3) the letter of special counsel for the Company and the Bank
addressed to the Agent, dated the Closing Date, in form and
substance to the effect that:
During the preparation of the Conversion Application,
the Registration Statement and the Prospectus, such counsel
participated in conferences with management of and the
independent public accountants for the Company and the Bank
and the Agent and its representatives and based upon such
conferences and a review of corporate records of the
<PAGE>
Ryan, Beck & Co., Inc.
August __, 1998
Page 24
Company and the Bank as such counsel conducted in connection
with the preparation of the Registration Statement, nothing
has come to their attention that would lead them to believe
that, the Registration Statement, the Prospectus, or any
amendment or supplement thereto (other than the financial
statements, notes to financial statements, financial tables
and other financial and statistical data and stock valuation
information included therein, as to which such counsel need
express no view), contained an untrue statement of a material
fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein, in light
of the circumstances under which they were made, not
misleading.
(4) The favorable opinion, dated as of the Closing Date, of
Luse Lehman Gorman Pomerenk & Schick, P.C, your counsel, with respect
to such matters as you may reasonably require. Such opinion may rely
upon the opinions of counsel to the Bank and the Company, and as to
matters of fact, upon certificates of officers and directors of the
Company and the Bank delivered pursuant hereto or as such counsel shall
reasonably request.
(c) At the Closing Date, you shall receive a certificate of the Chief Executive
Officer and the Chief Financial Officer of the Company and of the Chief
Executive Officer; and Chief Financial Officer of the Bank, dated as of such
Closing Date, to the effect that: (i) since the respective dates as of which
information is given in the Registration Statement and the Prospectus, there has
been no material adverse change in the financial condition, results of
operations or business of the Company and the Bank considered as one enterprise,
whether or not arising in the ordinary course of business; (ii) the
representations and warranties in Section 4 of this Agreement are true and
correct with the same force and effect as though expressly made at and as of the
Closing Date; (iii) the Company and the Bank have complied with all agreements
and satisfied all conditions on their part to be performed or satisfied at or
prior to the Closing Date and will comply with all obligations to be satisfied
by them after the Conversion; (iv) no stop order suspending the effectiveness of
the Registration Statement has been initiated or threatened by the Commission or
any state authority; and (v) no order suspending any of the Offerings, the
Conversion, the acquisition of all of the shares of the Bank by the Company or
the effectiveness of the Prospectus has been issued and no proceedings for that
purpose have been initiated or threatened by the Commission, any state
authority, the FDIC or the OTS.
(d) Prior to and at the Closing Date: (i) there shall have been no material
adverse change in the financial condition, results of operations or business of
the Company or the Bank independently, or of the Company or the Bank, considered
as one enterprise, from that as of the latest dates as of which such condition
is set forth in the Prospectus, except as referred to therein; (ii) there shall
have been no material transaction entered into by the Company and the Bank,
considered as one enterprise, from the latest date as of which the financial
condition of the Company or the Bank is set forth in the Prospectus other than
transactions referred to or contemplated therein; (iii) the Company or the Bank
shall not have received from the FDIC or the OTS any direction (oral or written)
to make any material change in the method of conducting their business with
which it has not complied (which direction, if any, shall have been disclosed to
the Agent) or which materially and adversely would affect the financial
condition, results of operations or business of the Company or the Bank; (iv)
neither the Company nor the Bank shall have been in default (nor shall an event
have occurred which, with notice or lapse of time or both, would constitute a
default) under any provision
<PAGE>
Ryan, Beck & Co., Inc.
August __, 1998
Page 25
of any agreement or instrument relating to any outstanding indebtedness; (v) no
action, suit or proceedings, at law or in equity or before or by any federal or
state commission, board or other administrative agency, shall be pending or, to
the knowledge of the Company or the Bank, threatened against the Company or the
Bank or affecting any of their properties wherein an unfavorable decision,
ruling or finding would materially and adversely affect the financial condition,
results of operations or business of the Company or the Bank, taken as a whole;
and (vi) the shares of Common Stock shall have been qualified or registered for
offering and sale under the securities or blue sky laws of the jurisdictions as
set forth in the Preliminary Blue Sky Survey of the law firm of Malizia, Spidi,
Sloane & Fisch, P.C.
(e) Concurrently with the execution of this Agreement, the Agent, the Company
and the Bank shall receive a letter from Lewis W. Parker, III, dated August ___,
1998 and addressed to the Agent: (i) confirming that Lewis W. Parker, III, is a
firm of independent public accountants with respect to the Company and the Bank
within the meaning of the 1933 Act and the 1933 Act Regulations and stating in
effect that in its opinion the financial statements of the Bank for the years
ended September 30, 1997 and 1996 and the six months ended March 31, 1998 and
1997, as are included in the Prospectus and, with respect to such audited
financial statements covered by its opinion included therein, comply as to form
in all material respects with the applicable accounting requirements of the 1933
Act, the 1934 Act and the related published rules and regulations of the
Commission thereunder and generally accepted accounting principles; (ii) stating
in effect that, on the basis of certain agreed upon procedures (but not an
examination in accordance with generally accepted auditing standards) consisting
of a reading of the latest available unaudited interim financial statements of
the Bank prepared by the Bank, a reading of the minutes of the meetings of the
Board of Directors and members of the Bank and consultations with officers of
the Bank responsible for financial and accounting matters, nothing came to its
attention which caused it to believe that: during the period from that date of
the latest audited financial statements included in the Prospectus to a
specified date not more than five business days prior to the date hereof, there
was any material increase in borrowings by the Company or the Bank (increases in
borrowings (which shall not include deposits) will not be deemed material if
such increase in total borrowings outstanding does not exceed $500,000); or
there was any material decrease in surplus and reserves of the Bank at the date
of such letter as compared with amounts shown in the latest audited statement of
condition included in the Prospectus or there was any material decrease in net
income or net interest income of the Bank for the number of full months
commencing immediately after the period covered by the latest audited income
statement included in the Prospectus and ended on the latest month end prior to
the date of the Prospectus or in such letter as compared to the corresponding
period in the preceding year; and (iii) stating that, in addition to the
examination referred to in its opinion included in the Prospectus and the
performance of the procedures referred to in clause (ii) of this subsection (e),
it has compared with the general accounting records of the Company and/or the
Bank, as applicable, which are subject to the internal controls of the Company's
and/or the Bank's, as applicable, accounting system and other data prepared by
the Company and/or the Bank, as applicable, directly from such accounting
records, to the extent specified in such letter, such amounts and/or percentages
set forth in the Prospectus as you may reasonably request; and they have found
such amounts and percentages to be in agreement therewith (subject to rounding).
(f) At the Closing Date, you shall receive a letter from Lewis W. Parker, III,
dated the Closing Date, addressed to the Agent, confirming the statements made
by it in the letter delivered by it pursuant to subsection (e) of this Section
9, the "specified date" referred to in clause (ii) (C) thereof to be a date
specified
<PAGE>
Ryan, Beck & Co., Inc.
August __, 1998
Page 26
in such letter, which shall not be more than five business days prior to the
Closing Date.
(g) At the Closing Date, you shall have received a letter from FinPro, dated as
of the Closing Date, confirming its appraisal.
(h) At the Closing Date, your counsel shall have been furnished with such
documents and opinions as they may reasonably require for the purpose of
enabling them to pass upon the sale of the shares as herein contemplated and
related proceedings or in order to evidence the accuracy or completeness of any
of the representations or warranties, or the fulfillment of any of the
conditions, herein contained; and all proceedings taken by the Company or the
Bank in connection with the Conversion and the sale of the shares of Common
Stock as herein contemplated shall be satisfactory in form and substance to you
and your counsel.
(i) The Company and the Bank shall not have sustained since the date of the
latest audited financial statements included in the Registration Statement and
Prospectus any loss or interference with its business from fire, explosion,
flood or other calamity, whether or not covered by insurance, or from any labor
dispute or court or governmental action, order or decree, otherwise than as set
forth or contemplated in the Registration Statement or otherwise provided to the
Agent in writing and in any such case described above, is in your judgment
sufficiently material and adverse as to make it impracticable or inadvisable to
proceed with any of the Offerings or the delivery of the Common Stock on the
terms and in the manner contemplated in the Prospectus.
(j) Subsequent to the date hereof, there shall not have occurred any of the
following: (i) a suspension or limitation in trading in securities generally on
the New York Stock Exchange or American Stock Exchange or in the
over-the-counter market, or quotations halted generally on the Nasdaq Stock
Market, or minimum or maximum prices for trading have been fixed, or maximum
ranges for prices for securities have been required by either of such exchanges
or the NASD or by order of the commission or any other governmental authority;
(ii) a general moratorium on the operation of commercial banks, federal savings
and loan associations or savings and loan associations in New Jersey or a
general moratorium on the withdrawal of deposits from commercial banks, federal
savings and loan associations or savings and loan associations in New Jersey
declared by either federal or New Jersey authorities; (iii) the engagement by
the United States in hostilities which have resulted in the declaration, on or
after the date hereof, of a national emergency or war; or (iv) a material
decline in the price of equity or debt securities if the effect of such a
decline, in your judgment, makes it impracticable or inadvisable to proceed with
any of the Offerings or the delivery of the shares of Common Stock on the terms
and in the manner contemplated in the Prospectus.
If any of the conditions specified in this Section 9 shall not have
been fulfilled when and as required by this Agreement, or by December 31, 1998,
this Agreement and all of your obligations hereunder may be canceled by you by
notifying the Bank of such cancellation in writing or by telegram at any time at
or prior to the Closing Date, and any such cancellation shall be without
liability of any party to any other party except as otherwise provided in
Sections 1, 6, 7 and 8 hereof. Notwithstanding the above, if this Agreement is
canceled pursuant to this paragraph, the Bank and the Company jointly and
severally agree to reimburse you for all of your out-of-pocket expenses
reasonably incurred by you, including any legal fees to be paid to the Agent's
counsel, and an advisory and administrative services fee of $25,000 in
connection with the
<PAGE>
Ryan, Beck & Co., Inc.
August __, 1998
Page 27
preparation of the Registration Statement and the Prospectus, and in
contemplation of the proposed Offerings.
SECTION 10. Termination.
(a) In the event the Company fails to sell all of the Common Stock
within the period specified, and in accordance with the provisions of the Plan
or as required by the Conversion Regulations, this Agreement shall terminate
upon refund by the Bank to each person who has subscribed for or ordered any of
the Common Stock the full amount which it may have received from such person,
together with interest as provided in the Prospectus, and no party to this
Agreement shall have any obligation to the other hereunder, except for payment
by the Bank and/or the Company as set forth in Sections 1, 6, 7 and 8 hereof.
(b) This Agreement may be terminated by the Agent, with respect to the
Agent's obligations hereunder, by notifying the Company at any time at or prior
to the Closing Date, if any of the conditions specified in Section 9 hereof
shall not have been fulfilled when and as required by this Agreement or if the
Conversion has not been completed by December 31, 1998.
SECTION 11. Survival. The respective indemnities, agreements,
representations, warranties and other statements of the Bank, the Company and
you, as set forth in this Agreement, shall remain in full force and effect,
regardless of any investigation (or any statement as to the results thereof)
made by or on behalf of you or any of your officers or directors of any person
controlling you, or the Bank or the Company, or any officer, director or person
controlling the Bank or the Company, and shall survive termination of this
Agreement and the receipt or delivery of any payment for the shares of Common
Stock.
SECTION 12. Miscellaneous. Notices hereunder, except as otherwise
provided herein, shall be given in writing or by telegraph, addressed (a) to the
Agent at 150 Monument Road, Suite 106, Bala Cynwyd, Pennsylvania 19004-1725
(Attention: Richard Weiss), with copies to Luse Lehman Gorman Pomerenk & Schick,
P.C., Suite 400, 5335 Wisconsin Avenue, N.W., Washington D.C. 20015 (Attention:
Robert I. Lipsher, Esq.) and (b) to the Bank and the Company at the Bank's
principal office (Attention: Gary N. Pelehaty), President), with a copy to
Malizia, Spidi, Sloane & Fisch, P.C., 1301 K Street, N.W., Suite 700 East,
Washington, D.C. 20005 (Attention: John J. Spidi, Esq.).
This Agreement is made solely for the benefit of and will be binding
upon the parties hereto and their respective successors and the controlling
persons, directors and officers referred to in Section 7 hereof, and no other
person will have any right or obligation hereunder. The term "successors" shall
not include any purchaser of any of the shares of Common Stock.
Capitalized terms used herein but not herein defined shall have the
meanings ascribed to them in the Plan, unless the context hereof clearly
indicates otherwise.
This Agreement shall be governed by and construed in accordance with
the laws of the State of New Jersey.
Time shall be of the essence of this Agreement.
<PAGE>
Ryan, Beck & Co., Inc.
August __, 1998
Page 28
This Agreement may be signed in various counterparts which together
will constitute one agreement.
If the foregoing correctly sets forth the arrangement among the
Company, the Bank and the Agent, please indicate acceptance thereof in the space
provided below for that purpose, whereupon this letter and your acceptance shall
constitute a binding agreement.
<TABLE>
<CAPTION>
<S> <C> <C>
FARNSWORTH BANCORP, INC., PEOPLES SAVINGS BANK,
a New Jersey corporation a federal savings bank
By: By:
------------------------------------- -------------------------------------
Gary N. Pelehaty Gary N. Pelehaty
President and Chief Executive Officer President and Chief Executive Officer
</TABLE>
Accepted as of the date first above written.
RYAN, BECK & CO., INC.
By:
-------------------------------------
Ben A. Plotkin
President and Chief Executive Officer
<PAGE>
Ryan, Beck & Co., Inc.
August __, 1998
Page 29
If the foregoing correctly sets forth the arrangement among the
Company, the Bank and the Agent, please indicate acceptance thereof in the space
provided below for that purpose, whereupon this letter and your acceptance shall
constitute a binding agreement.
<TABLE>
<CAPTION>
<S> <C> <C>
FARNSWORTH BANCORP, INC., PEOPLES SAVINGS BANK,
a New Jersey corporation a federal savings bank
By: By:
------------------------------------- -------------------------------------
Gary N. Pelehaty Gary N. Pelehaty
President and Chief Executive Officer President and Chief Executive Officer
</TABLE>
Accepted as of the date first above written.
RYAN, BECK & CO., INC.
By:
-------------------------------------
Ben A. Plotkin
President and Chief Executive Officer
EXHIBIT 2
<PAGE>
PLAN OF CONVERSION
Adopted on
March 2, 1998
By the Board of Directors of
PEOPLES SAVINGS BANK
BORDENTOWN, NEW JERSEY
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Introduction..................................................................................... 1
2. Definitions...................................................................................... 2
3. Procedure for Conversion......................................................................... 5
4. Holding Company Applications and Approvals....................................................... 6
5. Sale of Conversion Stock......................................................................... 6
6. Number of Shares and Purchase Price of Conversion Stock.......................................... 7
7. Purchase by the Holding Company of the Stock of the Institution.................................. 8
8. Subscription Rights of Eligible Account Holders (First Priority)................................. 8
9. Subscription Rights of Employee Plans (Second Priority).......................................... 9
10. Subscription Rights of Supplemental Eligible Account Holders (Third Priority).................... 9
11. Subscription Rights of Other Members (Fourth Priority)........................................... 10
12. Community Offering............................................................................... 10
13. Syndicated Community Offering.................................................................... 11
14. Limitation on Purchases.......................................................................... 12
15. Payment for Conversion Stock..................................................................... 13
16. Manner of Exercising Subscription Rights Through Order Forms..................................... 14
17. Undelivered, Defective or Late Order Forms or Insufficient Payment............................... 15
18. Restrictions on Resale or Subsequent Disposition................................................. 16
19. Voting Rights of Stockholders.................................................................... 16
20. Establishment of Liquidation Account............................................................. 17
21. Transfer of Savings Accounts..................................................................... 17
22. Restrictions on Acquisition of the Institution and Holding Company............................... 18
23. Payment of Dividends and Repurchases of Stock.................................................... 18
24. Amendment of Plan................................................................................ 19
25. Charter and Bylaws............................................................................... 19
26. Consummation of Conversion....................................................................... 19
27. Registration and Marketing....................................................................... 19
28. Residents of Foreign Countries and Certain States................................................ 19
29. Expenses of Conversion........................................................................... 20
30. Conditions to Conversion......................................................................... 20
31. Interpretation................................................................................... 20
</TABLE>
<PAGE>
PLAN OF CONVERSION
FOR
PEOPLES SAVINGS BANK
BORDENTOWN, NEW JERSEY
1. INTRODUCTION
This Plan of Conversion ("Plan") provides for the conversion of Peoples
Savings Bank, Bordentown, New Jersey ("INSTITUTION") into a federal capital
stock savings institution. The Board of Directors of the INSTITUTION currently
contemplates that all of the stock of the INSTITUTION shall be held by another
corporation (the "Holding Company"). The purpose of this conversion is to enable
the INSTITUTION to increase its equity capital base and will result in an
increase in the INSTITUTION's capital available to support growth and for
expansion of its facilities, possible acquisitions of other financial
institutions, possible diversification into other related financial services
activities and further enhance the INSTITUTION's ability to render services to
the public and compete with other financial institutions. The use of the Holding
Company would also provide greater organizational flexibility. Shares of capital
stock of the INSTITUTION will be sold to the Holding Company and the Holding
Company will offer the Conversion Stock upon the terms and conditions set forth
herein to Eligible Account Holders, the tax-qualified employee stock benefit
plans (the "Employee Plans") established by the INSTITUTION or the Holding
Company, which may be funded by the Holding Company, Supplemental Eligible
Account Holders, and Other Members in the respective priorities set forth in
this Plan. Any shares of Conversion Stock not subscribed for by the foregoing
classes of persons will be offered for sale to certain members of the public
either directly by the INSTITUTION and the Holding Company through a Community
Offering or a Syndicated Community Offering or in a Public Offering. In the
event that the INSTITUTION decides not to utilize the Holding Company in the
conversion, Conversion Stock of the INSTITUTION, in lieu of the Holding Company,
will be sold as set forth above and in the respective priorities set forth in
this Plan. In addition to the foregoing, the INSTITUTION and the Holding Company
intend to implement stock option plans and other stock benefit plans at the time
of or subsequent to the conversion and may provide employment or severance
agreements to certain management employees and certain other benefits to the
directors, officers and employees of the INSTITUTION as described in the
prospectus for the Conversion Stock.
This Plan, which has been unanimously approved by the Board of
Directors of the INSTITUTION, must also be approved by the affirmative vote of a
majority of the total number of votes entitled to be cast by Voting Members of
the INSTITUTION at a special meeting to be called for that purpose. Prior to the
submission of this Plan to the Voting Members for consideration, the Plan must
be approved by the Office of Thrift Supervision (the "OTS").
Upon conversion, each Account Holder having a Savings Account at the
INSTITUTION prior to conversion will continue to have a Savings Account, without
payment therefor, in the same amount and subject to the same terms and
conditions (except for voting and liquidation rights) as in effect prior to the
conversion. After conversion, the INSTITUTION will succeed to all the rights,
interests, duties and obligations of the INSTITUTION before conversion,
including but not limited to all rights and interests of the INSTITUTION in and
to its assets and properties, whether real, personal or mixed. The INSTITUTION
will continue to be a member of the Federal Home Loan Bank System and all its
insured savings deposits will continue to be insured by the Federal Deposit
Insurance Corporation (the "FDIC") to the extent provided by applicable law.
1
<PAGE>
2. DEFINITIONS
For the purposes of this Plan, the following terms have the following
meanings:
Account Holder - The term Account Holder means any Person holding a
Savings Account in the INSTITUTION.
Acting in Concert - The Term "Acting in Concert" means (i) knowing
participation in a joint activity or interdependent conscious parallel action
towards a common goal whether or not pursuant to an express agreement; (ii) a
combination or pooling of voting or other interests in the securities of an
issuer for a common purpose pursuant to any contract, understanding,
relationship, agreement or other arrangement, whether written or otherwise; or
(iii) a person or company which acts in concert with another person or company
("other party") shall also be deemed to be acting in concert with any person or
company who is also acting in concert with that other party, except that any
tax-qualified employee stock benefit plan will not be deemed to be acting in
concert with its trustee or a person who serves in a similar capacity solely for
the purpose of determining whether stock held by the trustee and stock held by
the plan will be aggregated.
Associate - The term Associate when used to indicate a relationship
with any person, means (i) any corporation or organization (other than the
INSTITUTION or a majority-owned subsidiary of the INSTITUTION) of which such
person is an officer or partner or is, directly or indirectly, the beneficial
owner of 10 percent or more of any class of equity securities, (ii) any trust or
other estate in which such person has a substantial beneficial interest or as to
which such person serves as trustee or in a similar fiduciary capacity except
that for the purposes of Sections 8 and 14 hereof, the term "Associate" does not
include any Tax-Qualified Employee Stock Benefit Plan or any Tax-Qualified
Employee Stock Benefit Plan in which a person has a substantial beneficial
interest or serves as a trustee or in a similar fiduciary capacity, and except
that, for purposes of aggregating total shares that may be held by Officers and
Directors the term "Associate" does not include any Tax-Qualified Employee Stock
Benefit Plan, and (iii) any relative or spouse of such person, or any relative
of such spouse, who has the same home as such person or who is a Director or
Officer of the INSTITUTION or the Holding Company, or any of its parents or
subsidiaries.
Community Offering - The term Community Offering means the offering for
sale to certain members of the general public directly by the Holding Company,
of any shares not subscribed for in the Subscription Offering.
Conversion Stock - The term Conversion Stock means the $.10 par value
common stock offered and issued by the Holding Company upon conversion.
Director - The term Director means a member of the Board of Directors
of the INSTITUTION and, where applicable, a member of the Board of Directors of
the Holding Company.
Eligible Account Holder - The term Eligible Account Holder means any
person holding a Qualifying Deposit at the INSTITUTION on the Eligibility Record
Date. Only the name(s) of the Person(s) listed on the account as of the
Eligibility Record Date (or a successor entity or estate) shall be an Eligible
Account Holder. Any Person or Persons added to a Qualifying Deposit after the
Eligibility Record Date shall not be an Eligible Account Holder.
Eligibility Record Date - The term Eligibility Record Date means the
date for determining Eligible Account Holders in the INSTITUTION and is the
close of business on December 31, 1996.
2
<PAGE>
Employees - The term Employees means all Persons who are employed by
the INSTITUTION.
Employee Plans - The term Employee Plans means the Tax-Qualified
Employee Stock Benefit Plans, including the Employee Stock Ownership Plan,
approved by the Board of Directors of the INSTITUTION.
Estimated Valuation Range. The term Estimated Valuation Range means the
range of the estimated pro forma market value of the Conversion Stock as
determined by the Independent Appraiser prior to the Subscription Offering and
as it may be amended from time to time thereafter.
FDIC - The term FDIC means the Federal Deposit Insurance Corporation.
Holding Company - The term Holding Company means the corporation formed
for the purpose of acquiring all of the shares of capital stock of the
INSTITUTION to be issued upon its conversion to stock form unless the Holding
Company form of organization is not utilized. Shares of common stock of the
Holding Company will be issued in the conversion to Participants and others in a
Subscription, Community, Syndicated Community or underwritten firm commitment
public offering, or through a combination thereof.
Independent Appraiser - The term Independent Appraiser means an
appraiser retained by the INSTITUTION to prepare an appraisal of the pro forma
market value of the Conversion Stock.
Institution - The term INSTITUTION means Peoples Savings Bank,
Bordentown, New Jersey.
Local Community - The term local community means the incorporated
cities and the counties in which the INSTITUTION has offices.
Member - The term Member means any Person or entity who qualifies as a
member of the INSTITUTION pursuant to its charter and bylaws.
OTS - The term OTS means Office of Thrift Supervision of the Department
of the Treasury.
Officer - The term Officer means an executive officer of the
INSTITUTION and may include the Chairman of the Board, Chief Executive Officer,
President, Senior Vice Presidents, Vice Presidents in charge of principal
business functions, Secretary and Treasurer and any Person performing functions
similar to those performed by the foregoing persons.
Order Form - The term Order Form means any form together with attached
cover letter, sent by the INSTITUTION to any Person containing among other
things a description of the alternatives available to such Person under the Plan
and by which any such Person may make elections regarding subscriptions for
Conversion Stock in the Subscription and Community Offerings.
Other Member - The term Other Member means any person, who is a Member
of the INSTITUTION (other than Eligible Account Holders or Supplemental Eligible
Account Holders) at the close of business on the voting record date.
Participants - The term Participants means the Eligible Account
Holders, Employee Plans, Supplemental Eligible Account Holders and Other
Members.
3
<PAGE>
Person - The term Person means an individual, a corporation, a
partnership, an association, a joint-stock company, a trust (including
Individual Retirement Accounts and KEOGH Accounts), any unincorporated
organization, a government or political subdivision thereof or any other entity.
Plan - The term Plan means this Plan of Conversion of the INSTITUTION
as it exists on the date hereof and as it may hereafter be amended in accordance
with its terms.
Public Offering - The term Public Offering means the offering for sale
through the Underwriter to the general public of any shares of Conversion Stock
not subscribed for in the Subscription Offering or Community Offering.
Purchase Order - The term Purchase Order means any form together with
attached cover letter, sent by the Underwriter to any Person containing among
other things a description of the alternatives available to such Person under
the Plan and by which any such Person may make elections regarding subscriptions
for Conversion Stock in the Public Offering or Syndicated Community Offering.
Purchase Price - The term Purchase Price means the per share price at
which the Conversion Stock will be sold in accordance with the terms hereof.
Qualifying Deposit - The term Qualifying Deposit means the balance of
each Savings Account of $50 or more in the INSTITUTION at the close of business
on the Eligibility Record Date or Supplemental Eligibility Record Date. Savings
Accounts with total deposit balances of less than $50 shall not constitute a
Qualifying Deposit. Pursuant to the authority contained in 12 C.F.R.
ss.563b.3(e)(1), the term Qualifying Deposit also includes demand accounts as
defined in 12 C.F.R. ss.561.16(a) of $50 or more in the INSTITUTION at the close
of business on the Eligibility Record Date or Supplemental Eligibility Record
Date.
SEC - The term SEC refers to the Securities and Exchange Commission.
Savings Account - The term Savings Account includes savings accounts as
defined in Section 561.42 of the Rules and Regulations of the OTS and includes
certificates of deposit.
Special Meeting of Members - The term Special Meeting of Members means
the special meeting and any adjournments thereof held to consider and vote upon
this Plan.
Subscription Offering - The term Subscription Offering means the
offering of Conversion Stock for purchase through Order Forms to Participants.
Supplemental Eligibility Record Date - The term Supplemental
Eligibility Record Date means the close of business on the last day of the
calendar quarter preceding the approval of the Plan by the OTS.
Supplemental Eligible Account Holder - The term Supplemental Eligible
Account Holder means a holder of a Qualifying Deposit in the INSTITUTION (other
than an officer or trustee or their Associates) at the close of business on the
Supplemental Eligibility Record Date.
Syndicated Community Offering - The term Syndicated Community Offering
means the offering of Conversion Stock following the Subscription, Community or
Public Offerings through a syndicate of broker-dealers.
4
<PAGE>
Tax-Qualified Employee Stock Benefit Plan - The term Tax-Qualified
Employee Stock Benefit Plan means any defined benefit plan or defined
contribution plan, such as an employee stock ownership plan, stock bonus plan,
profit-sharing plan or other plan, which, with its related trust, meets the
requirements to be "qualified" under Section 401 of the Internal Revenue Code.
Underwriter - The term Underwriter means the investment banking firm or
firms through which the Conversion Stock will be offered and sold in the
Community or Public Offering.
Voting Members - The term Voting Members means those persons qualifying
as voting members of the INSTITUTION pursuant to its charter and bylaws.
Voting Record Date - The term Voting Record Date means the date fixed
by the Directors in accordance with OTS regulations for determining eligibility
to vote at the Special Meeting of Members.
3. PROCEDURE FOR CONVERSION
After approval of the Plan by the Board of Directors of the
INSTITUTION, the Plan shall be submitted together with all other requisite
material to the OTS for its approval. Notice of the adoption of the Plan by the
Board of Directors of the INSTITUTION will be published in a newspaper having
general circulation in each community in which an office of the INSTITUTION is
located and copies of the Plan will be made available at each office of the
INSTITUTION for inspection by the Members. Upon filing the application with the
OTS, the INSTITUTION also will cause to be published a notice of the filing with
the OTS of an application to convert in accordance with the provisions of the
Plan. Following approval by the OTS, the Plan will be submitted to a vote of the
Voting Members at a Special Meeting of Members called for that purpose. Upon
approval of the Plan by a majority of the total outstanding votes of the Voting
Members, the INSTITUTION will take all other necessary steps pursuant to
applicable laws and regulations to convert the INSTITUTION to stock form. The
conversion must be completed within 24 months of the approval of the Plan by the
Voting Members, unless a longer time period is permitted by governing laws and
regulations.
The period for the Subscription Offering and Community Offering, if
any, will be not less than 20 days nor more than 45 days unless extended by the
INSTITUTION. Upon completion of the Subscription Offering and the Community
Offering, if any, any unsubscribed shares of Conversion Stock will, if feasible,
be sold through the Underwriter to the general public in the Public Offering
and/or Syndicated Community Offering. If for any reason the Public Offering
and/or Syndicated Community Offering of all shares not sold in the Subscription
Offering and Community Offering cannot be effected, the Holding Company and the
INSTITUTION will use their best efforts to obtain other purchasers, subject to
OTS approval. Completion of the sale of all shares of Conversion Stock not sold
in the Subscription Offering and Community Offering is required within 45 days
after termination of the Subscription Offering, subject to extension of such
45-day period by the Holding Company and the INSTITUTION with the approval of
the OTS. The Holding Company and the INSTITUTION may jointly seek one or more
extensions of such 45-day period if necessary to complete the sale of all shares
of Conversion Stock. In connection with such extensions, subscribers and other
purchasers will be permitted to increase, decrease or rescind their
subscriptions or purchase orders to the extent required by the OTS in approving
the extensions.
The Board of Directors of the INSTITUTION intends to take all necessary
steps to form the Holding Company including the filing of an Application on Form
H-(e)1 or H-(e)1-S, if available to the Holding Company, with the OTS. Upon
conversion, the INSTITUTION will issue its capital stock to
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the Holding Company and the Holding Company will issue and sell the Conversion
Stock in accordance with this Plan.
The Board of Directors of the INSTITUTION may determine for any reason
at any time prior to the issuance of the Conversion Stock not to utilize a
holding company form of organization in the Conversion, in which case, the
Holding Company's registration statement on Form SB-2 will be withdrawn from the
SEC, the INSTITUTION will take all steps necessary to complete the conversion
from the mutual to the stock form of organization, including filing any
necessary documents with the OTS and will issue and sell the Conversion Stock in
accordance with this Plan. In such event, any subscriptions or orders received
for Conversion Stock of the Holding Company shall be deemed to be subscriptions
or orders for Conversion Stock of the INSTITUTION without any further action by
the INSTITUTION or the subscribers for the Conversion Stock. Any references to
the Holding Company in this Plan shall mean the INSTITUTION in the event the
Holding Company is eliminated in Conversion.
The Conversion Stock will not be insured by the FDIC. The INSTITUTION
will not knowingly lend funds or otherwise extend credit to any Person to
purchase shares of the Conversion Stock.
4. HOLDING COMPANY APPLICATIONS AND APPROVALS
The Holding Company shall make timely applications for any requisite
regulatory approvals, including an Application on Form H-(e)1 or an H-(e)1-S, if
available to the Holding Company, to be filed with the OTS and a Registration
Statement on Form SB-2 to be filed with the SEC. The INSTITUTION shall be a
wholly owned subsidiary of the Holding Company.
5. SALE OF CONVERSION STOCK
The Conversion Stock will be offered simultaneously in the Subscription
Offering to the Eligible Account Holders, Employee Plans, Supplemental Eligible
Account Holders and Other Members in the respective priorities set forth in
Sections 8 through 11 of this Plan. The Subscription Offering may be commenced
as early as the mailing of the Proxy Statement for the Special Meeting of
Members and must be commenced in time to complete the conversion within the time
period specified in Section 3.
Any shares of Conversion Stock not subscribed for in the Subscription
Offering will be offered for sale in the Community Offering as provided in
Section 12 of this Plan and may be offered in a Syndicated Community Offering or
sold through the Underwriter to the public in a Public Offering, as provided in
Section 13, if necessary and feasible. The Subscription Offering may be
commenced prior to the Special Meeting of Members and, in that event, the
Community Offering, if any, may also be commenced prior to the Special Meeting
of Members. The offer and sale of Conversion Stock, prior to the Special Meeting
of Members shall, however, be conditioned upon approval of the Plan by the
Voting Members.
Shares of Conversion Stock may be sold in a Syndicated Community
Offering, or in a Public Offering, as provided in Section 13 of this Plan in a
manner that will achieve the widest distribution of the Conversion Stock as
determined by the INSTITUTION. In the event of a Syndicated Community Offering,
or Public Offering, the sale of all Conversion Stock subscribed for will be
consummated only if all unsubscribed for Conversion Stock is sold.
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The INSTITUTION may elect to pay fees on either a fixed fee or
commission basis or combination thereof to an investment banking firm which
assists it in the sale of the Conversion Stock in the offerings.
The INSTITUTION may also elect to offer to pay fees on a per share
basis to brokers who assist Persons in determining to purchase shares in the
offerings.
6. NUMBER OF SHARES AND PURCHASE PRICE OF CONVERSION STOCK
The total number of shares (or a range thereof) of Conversion Stock to
be issued and offered for sale will be determined by the Boards of Directors of
the INSTITUTION and the Holding Company, immediately prior to the commencement
of the Subscription Offering, subject to adjustment thereafter if necessitated
by a change in the appraisal due to changes in market or financial conditions,
with the approval of the OTS, if necessary.
All shares sold in the conversion will be sold at a uniform price per
share referred to in this Plan as the Purchase Price. The aggregate Purchase
Price for all shares of Conversion Stock will not be inconsistent with the
estimated consolidated pro forma market value of the INSTITUTION. The estimated
consolidated pro forma market value of the INSTITUTION will be determined for
such purpose by the Independent Appraiser. Prior to the commencement of the
Subscription Offering, an Estimated Valuation Range will be established, which
range will vary within 15% above to 15% below the midpoint of such range. The
number of shares of Conversion Stock to be issued and/or the Purchase Price per
share may be increased or decreased by the INSTITUTION. In the event that the
aggregate Purchase Price of the Conversion Stock is below the minimum of the
Estimated Valuation Range, or materially above the maximum of the Estimated
Valuation Range, resolicitation of subscribers may be required, provided that up
to a 15% increase above the maximum of the Estimated Valuation Range will not be
deemed material so as to require a resolicitation. Any such resolicitation shall
be effected in such manner and within such time as the INSTITUTION shall
establish, with the approval of the OTS, if required. Up to a 15% increase in
the number of shares to be issued which is supported by an appropriate change in
the estimated pro forma market value of the INSTITUTION or in order to fill the
order by the Employee Plans will not be deemed to be material so as to require a
resolicitation of subscriptions.
Based upon the independent valuation as updated prior to the
consummation of the Subscription and Community Offerings, the Boards of
Directors of the INSTITUTION and the Holding Company will fix the Purchase
Price.
Notwithstanding the foregoing, no sale of Conversion Stock may be
consummated unless, prior to such consummation, the Independent Appraiser
confirms to the INSTITUTION and Holding Company and to the OTS that, to the best
knowledge of the Independent Appraiser, nothing of a material nature has
occurred which, taking into account all relevant factors, would cause the
Independent Appraiser to conclude that the aggregate value of the Conversion
Stock sold at the Purchase Price is incompatible with its estimate of the
aggregate consolidated pro forma market value of the INSTITUTION. If such
confirmation is not received, the INSTITUTION may cancel the Subscription and
Community Offerings, the Syndicated Community Offering and/or the Public
Offering, reopen or hold new Subscription and Community Offerings, Syndicated
Community Offering and/or the Public Offering to take such other action as the
OTS may permit.
The Conversion Stock to be issued in the Conversion shall be fully paid
and nonassessable.
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7. PURCHASE BY THE HOLDING COMPANY OF THE STOCK OF THE INSTITUTION
Upon the consummation of the sale of all of the Conversion Stock, the
Holding Company will purchase from the INSTITUTION all of the capital stock of
the INSTITUTION to be issued by the INSTITUTION in the conversion in exchange
for the Conversion proceeds that are not permitted to be retained by the Holding
Company.
The Holding Company will apply to the OTS to retain up to 50% of the
proceeds of the Conversion. Assuming the Holding Company is not eliminated, a
lesser percentage may be acceptable.
8. SUBSCRIPTION RIGHTS OF ELIGIBLE ACCOUNT HOLDERS (FIRST PRIORITY)
A. Each Eligible Account Holder shall receive, without payment,
nontransferable subscription rights to subscribe for shares of Conversion Stock
equal to the greater of: (i) the maximum established for the Community Offering;
(ii) one-tenth of one percent of the Conversion Stock offered; or (iii) 15 times
the product (rounded down to the next whole number) obtained by multiplying the
total number of shares of Conversion Stock offered by a fraction of which the
numerator is the amount of the Qualifying Deposit of such Eligible Account
Holder and the denominator is the total amount of Qualifying Deposits of all
Eligible Account Holders but in no event greater than the maximum purchase
limitation specified in Section 14 hereof. All such purchases are subject to the
maximum and minimum purchase limitations specified in Section 14 and are
exclusive of an increase in the total number of shares issued due to an increase
in the maximum of the Estimated Valuation Range of up to 15%. Only Persons with
Qualifying Deposits as of the Eligibility Record Date (or a successor entity or
estate) shall receive subscription rights. Any Person or Persons added to a
Qualifying Deposit after the Eligibility Record Date shall not be an Eligible
Account Holder.
B. In the event that Eligible Account Holders exercise Subscription
Rights for a number of shares of Conversion Stock in excess of the total number
of such shares eligible for subscription, the shares of Conversion Stock shall
be allocated among the subscribing Eligible Account Holders so as to permit each
subscribing Eligible Account Holder, to the extent possible, to purchase a
number of shares sufficient to make his or her total allocation of Conversion
Stock equal to the lesser of 100 shares or the number of shares subscribed for
by the Eligible Account Holder. Any shares remaining after that allocation will
be allocated among the subscribing Eligible Account Holders whose subscriptions
remain unsatisfied in the proportion that the amount of the Qualifying Deposit
of each Eligible Account Holder whose subscription remains unsatisfied bears to
the total amount of the Qualifying Deposits of all Eligible Account Holders
whose subscriptions remain unsatisfied. If the amount so allocated exceeds the
amount subscribed for by any one or more Eligible Account Holders, the excess
shall be reallocated (one or more times as necessary) among those Eligible
Account Holders whose subscriptions are still not fully satisfied on the same
principle until all available shares have been allocated or all subscriptions
satisfied.
C. Subscription rights as Eligible Account Holders received by
Directors and Officers and their Associates which are based on deposits made by
such persons during the twelve (12) months preceding the Eligibility Record Date
shall be subordinated to the Subscription Rights of all other Eligible Account
Holders.
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9. SUBSCRIPTION RIGHTS OF EMPLOYEE PLANS (SECOND PRIORITY)
Subject to the availability of sufficient shares after filling
subscription orders of Eligible Account Holders under Section 8, the Employee
Plans shall receive without payment nontransferable subscription rights to
purchase in the Subscription Offering the number of shares of Conversion Stock
requested by such Plans, subject to the purchase limitations set forth in
Section 14.
The Employee Plans shall not be deemed to be associates or affiliates
of or Persons Acting in Concert with any Director or Officer of the Holding
Company or the INSTITUTION.
10. SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS (THIRD PRIORITY)
A. In the event that the Eligibility Record Date is more than 15 months
prior to the date of the latest amendment to the Application filed prior to OTS
approval, then, and only in that event, each Supplemental Eligible Account
Holder shall receive, without payment, nontransferable subscription rights
entitling such Supplemental Eligible Account Holder to purchase that number of
shares of Conversion Stock which is equal to the greater of: (i) the maximum
purchase limitation established for the Community Offering; (ii) one-tenth of 1%
of the Conversion Stock Offered; and (iii) or 15 times the product (rounded down
to the next whole number) obtained by multiplying the total number of shares of
Conversion Stock to be issued by a fraction of which the numerator is the amount
of the Qualifying Deposit of the Supplemental Eligible Account Holder and the
denominator is the total amount of the Qualifying Deposits of all Supplemental
Eligible Account Holders. All such purchases are subject to the maximum and
minimum purchase limitations in Section 14 and are exclusive of an increase in
the total number of shares issued due to an increase in the maximum of the
Estimated Valuation Range of up to 15%.
B. Subscription rights received pursuant to this Category shall be
subordinated to the subscription rights received by Eligible Account Holders and
by the Employee Plans.
C. Any subscription rights to purchase shares of Conversion Stock
received by an Eligible Account Holder in accordance with Section 8 shall reduce
to the extent thereof the subscription rights to be distributed pursuant to this
Section.
D. In the event of an oversubscription for shares of Conversion Stock
pursuant to this Section, shares of Conversion Stock shall be allocated among
the subscribing Supplemental Eligible Account Holders as follows:
(1) Shares of Conversion Stock shall be
allocated so as to permit each such Supplemental
Eligible Account Holder, to the extent possible, to
purchase a number of shares of Conversion Stock
sufficient to make his total allocation (including
the number of shares of Conversion Stock, if any,
allocated in accordance with Section 8) equal to 100
shares of Conversion Stock or the total amount of his
subscription, whichever is less.
(2) Any shares of Conversion Stock not
allocated in accordance with subparagraph (1) above
shall be allocated among the subscribing Supplemental
Eligible Account Holders on an equitable basis,
related to the amounts of their respective Qualifying
Deposits as compared to the total Qualifying Deposits
of all subscribing Supplemental Eligible Account
Holders.
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11. SUBSCRIPTION RIGHTS OF OTHER MEMBERS (FOURTH PRIORITY)
A. Each Other Member shall receive, without payment, nontransferable
subscription rights to subscribe for shares of Conversion Stock in an amount
equal to the greater of the maximum purchase limitation established for the
Community Offering or one-tenth of one percent of the Conversion Stock offered,
subject to the maximum and minimum purchase limitations specified in Section 14
and exclusive of an increase in the total number of shares issued due to an
increase in the maximum of the Estimated Valuation Range of up to 15%, which
will be allocated only after first allocating to Eligible Account Holders, the
Employee Plans and Supplemental Eligible Account Holders all shares of
Conversion Stock subscribed for pursuant to Sections 8, 9 and 10 above.
B. In the event that such Other Members subscribe for a number of
shares of Conversion Stock which, when added to the shares of Conversion Stock
subscribed for by the Eligible Account Holders, the Employee Plans and the
Supplemental Eligible Account Holders is in excess of the total number of shares
of Conversion Stock being issued, the subscriptions of such Other Members will
be allocated among the subscribing Other Members so as to permit each
subscribing Other Member, to the extent possible, to purchase a number of shares
sufficient to make his total allocation of Conversion Stock equal to the lesser
of 100 shares or the number of shares subscribed for by the Other Member. Any
shares remaining will be allocated among the subscribing Other Members whose
subscriptions remain unsatisfied on a 100 shares (or whatever lesser amount is
available) per order basis until all orders have been filled or the remaining
shares have been allocated.
12. COMMUNITY OFFERING
If less than the total number of shares of Conversion Stock to be
subscribed for in the Conversion are sold in the Subscription Offering, shares
remaining unsubscribed may be made available for purchase in the Community
Offering to certain members of the general public. The maximum number of shares
of Conversion Stock, which may be subscribed for in the Community Offering, if
any, by any Person shall not exceed such number of shares of Conversion Stock as
shall equal $60,000 divided by the Purchase Price, subject to the maximum and
minimum purchase limitations specified in Section 14. The shares may be made
available in the Community Offering, if any, through a direct community
marketing program which may provide for utilization of a broker, dealer,
consultant or investment banking firm, experienced and expert in the sale of
savings institution securities. In the Community Offering, if any, shares will
be available for purchase by the general public with preference given to natural
persons residing in the Local Community. Subject to these preferences, the
INSTITUTION shall make distribution of the Conversion Stock to be sold in the
Community Offering in such a manner as to promote the widest distribution of
Conversion Stock.
If Persons in the Community Offering, whose orders would otherwise be
accepted, subscribe for more shares than are available for purchase, the shares
available to them will be allocated among persons submitting orders in the
Community Offering in an equitable manner as determined by the Board of
Directors. The INSTITUTION may establish all terms and conditions of such offer.
The Community Offering, if any, may commence simultaneously with,
during or subsequent to the completion of the Subscription Offering and if
commenced simultaneously with or during the Subscription Offering the Community
Offering may be limited to those Persons who are eligible to subscribe for stock
in the Community Offering. If commenced, the Community Offering must be
completed within 45 days after the completion of the Subscription Offering
unless otherwise extended by the OTS.
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The INSTITUTION and the Holding Company, in their absolute discretion,
reserve the right to reject any or all orders in whole or in part which are
received in the Community Offering, at the time of receipt or as soon as
practicable following the completion of the Community Offering.
Any shares of Conversion Stock not sold in the Subscription Offering or
in the Community Offering, if any, may then be sold through the Underwriter to
the general public at the Purchase Price in the Public Offering, subject to such
terms, conditions and procedures as may be determined by the Boards of Directors
of the INSTITUTION and the Holding Company, in a manner that will achieve the
widest distribution of the Conversion Stock and subject to the right of the
INSTITUTION and the Holding Company, in their absolute discretion, to accept or
reject in whole or in part all subscriptions in the Public Offering. In the
Public Offering, if any, any person together with any Associate or group of
persons Acting in Concert may purchase up to the maximum purchase limitation
established for the Syndicated Community Offering, subject to the maximum and
minimum purchase limitations specified in Section 14 and exclusive of an
increase in the total number of shares issued due to an increase in the maximum
of the Estimated Valuation Range of up to 15%. Shares purchased by any Person
together with any Associate or group of persons Acting in Concert pursuant to
Section 12 shall be counted toward meeting the maximum purchase limitation
specified for this Section. Provided that the Subscription Offering has
commenced, the INSTITUTION may commence the Public Offering at any time after
the mailing to the Members of the Proxy Statement to be used in connection with
the Special Meeting of Members, provided that the completion of the offer and
sale of the Conversion Stock shall be conditioned upon the approval of this Plan
by the Voting Members. It is expected that the Public Offering, if any, will
commence just prior to, or as soon as practicable after, the termination of the
Subscription Offering and the Community Offering, if any. The Public Offering
shall be completed within 45 days after the termination of the Subscription
Offering, unless such period is extended as provided in Section 3, above.
If for any reason a Public Offering of shares of Conversion Stock not
sold in the Subscription Offering and Community Offering, if any, cannot be
effected, other purchase arrangements will be made for the sale of unsubscribed
shares by the INSTITUTION, if possible. Such other purchase arrangements will be
subject to the approval of the OTS.
13. SYNDICATED COMMUNITY OFFERING AND PUBLIC OFFERING
Shares of Conversion Stock not subscribed for in the Subscription
Offering and Community Offering, if any, or the Public Offering, if any, may be
sold in a Syndicated Community Offering, subject to such terms, conditions and
procedures as may be determined by the Boards of Directors of the INSTITUTION
and the Holding Company, in a manner that will achieve the widest distribution
of the Conversion Stock and subject to the right of the INSTITUTION and the
Holding Company, in their absolute discretion, to accept or reject in whole or
in part all subscriptions in the Syndicated Community Offering. In the
Syndicated Community Offering, any Person may purchase up to the maximum
purchase limitation established for the Community Offering, subject to the
maximum and minimum purchase limitations specified in Section 14 and exclusive
of an increase in the total number of shares issued due to an increase in the
maximum of the Estimated Valuation Range of up to 15%. Shares purchased by any
Person together with any Associate or group of persons Acting in Concert
pursuant to Section 12 shall be counted toward meeting the maximum purchase
limitation specified for this Section. Provided that the Subscription Offering
has commenced, the INSTITUTION may commence the Syndicated Community Offering at
any time after the mailing to the Members of the Proxy Statement to be used in
connection with the Special Meeting of Members, provided that the completion of
the offer and sale of the Conversion Stock shall be conditioned upon the
approval of this Plan by the Voting Members. If the Syndicated Community
Offering is not sooner commenced pursuant to the provisions of the preceding
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sentence, the Syndicated Community Offering will be commenced as soon as
practicable following the date upon which the Subscription and Community
Offerings terminate.
14. LIMITATION ON PURCHASES
The following limitations shall apply to all purchases of shares of
Conversion Stock:
A. The maximum number of shares of Conversion Stock which may be
subscribed for or purchased in all categories in the conversion by any Person
(or persons through a single account) or Participant together with any Associate
or group of persons Acting in Concert shall not exceed such number of shares as
shall equal $60,000 divided by the Purchase Price per share, except for Employee
Plans, which in the aggregate may subscribe for up to 10% of the Conversion
Stock issued. In accordance with Section 31 of the Plan, the Board of Directors
shall have the authority to determine whether persons are Acting in Concert or
otherwise are in compliance with the Plan's limitations on purchases.
B. The maximum number of shares of Conversion Stock which may be
purchased in all categories in the conversion by Officers and Directors of the
INSTITUTION and their Associates in the aggregate shall not exceed 35% of the
total number of shares of Conversion Stock issued.
C. A minimum of 25 shares of Conversion Stock must be purchased by each
Person purchasing shares in the conversion to the extent those shares are
available; provided, however, that the minimum number of shares requirement will
not apply if the number of shares of Conversion Stock purchased times the price
per share exceeds $500.
D. The Employee Plans shall not be deemed to be associates or
affiliates of, or Persons Acting in Concert with, any Director or Officer of the
Holding Company or the Institution.
If the number of shares of Conversion Stock otherwise allocable
pursuant to Sections 8 through 13, inclusive, to any Person or that Person's
Associates would be in excess of the maximum number of shares permitted as set
forth above, the number of shares of Conversion Stock allocated to each such
person shall be reduced to the lowest limitation applicable to that Person, and
then the number of shares allocated to each group consisting of a Person and
that Person's Associates shall be reduced so that the aggregate allocation to
that Person and his or her Associates complies with the above maximums, and such
maximum number of shares shall be reallocated among that Person and his or her
Associates as they may agree, or in the absence of an agreement, in proportion
to the shares subscribed by each (after first applying the maximums applicable
to each Person, separately).
Depending upon market or financial conditions, the Board of Directors
of the INSTITUTION and the Holding Company, without further approval of the
Members, may decrease or increase the purchase limitations in this Plan,
provided that the maximum purchase limitations may not be increased to a
percentage in excess of 5%. Notwithstanding the foregoing, the maximum purchase
limitation may be increased up to 9.99% provided that orders for Conversion
Stock exceeding 5% of the shares being offered shall not exceed, in the
aggregate, 10% of the total offering. If the INSTITUTION and the Holding Company
increase the maximum purchase limitations, the INSTITUTION and the Holding
Company are only required to resolicit Persons who subscribed for the maximum
purchase amount and may, in the sole discretion of the INSTITUTION and the
Holding Company, resolicit certain other large subscribers. For purposes of this
Section 14, the Directors of the INSTITUTION and the Holding Company shall not
be deemed to be Associates or a group affiliated with each other or otherwise
Acting in Concert solely as a result of their being Directors of the INSTITUTION
or the Holding Company.
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In the event of an increase in the total number of shares offered in
the conversion due to an increase in the maximum of the Estimated Valuation
Range of up to 15% (the "Adjusted Maximum") the additional shares will be used
in the following order of priority: (i) to fill the Employees Plan's
subscription to up to 10% of the Adjusted Maximum; (ii) in the event that there
is an oversubscription at the Eligible Account Holder level, to fill unfilled
subscriptions of Eligible Account Holders exclusive of the Adjusted Maximum
according to Section 8, with preference given to Purchasers eligible to
subscribe for Conversion Stock in the Community Offering; (iii) in the event
that there is an oversubscription at the Supplemental Eligible Account Holder
level, to fill unfilled subscriptions of Supplemental Eligible Account Holders
exclusive of the Adjusted Maximum according to Section 10, with preference given
to Purchasers eligible to subscribe for Conversion Stock in the Community
Offering; (iv) in the event that there is an oversubscription at the Other
Member level, to fill unfilled subscriptions of Other Members exclusive of the
Adjusted Maximum in accordance with Section 11, with preference given to
Purchasers eligible to subscribe for Conversion Stock in the Community Offering;
and (v) to fill unfilled Subscriptions in the Community Offering exclusive of
the Adjusted Maximum, with preference given to Purchasers eligible to subscribe
for Conversion Stock in the Community Offering.
Each Person purchasing Conversion Stock in the Conversion shall be
deemed to confirm that such purchase does not conflict with the above purchase
limitations contained in this Plan.
For a period of three years following the conversion, no Officer,
Director or their Associates shall purchase, without the prior written approval
of the OTS, any outstanding shares of common stock of the Holding Company,
except from a broker-dealer registered with the SEC. This provision shall not
apply to negotiated transactions involving more than one percent of the
outstanding shares of common stock of the Holding Company, the exercise of any
options pursuant to a stock option plan or purchases of common stock of the
Holding Company, made by or held by any Tax-Qualified Employee Stock Benefit
Plan or Non-Tax Qualified Employee Stock Benefit Plan of the INSTITUTION or the
Holding Company (including the Employee Plans) which may be attributable to any
Officer or Director. As used herein, the term "negotiated transaction" means a
transaction in which the securities are offered and the terms and arrangements
relating to any sale are arrived at through direct communications between the
seller or any person acting on its behalf and the purchaser or his investment
representative. The term "investment representative" shall mean a professional
investment advisor acting as agent for the purchaser and independent of the
seller and not acting on behalf of the seller in connection with the
transaction.
15. PAYMENT FOR CONVERSION STOCK
All payments for Conversion Stock subscribed for in the Subscription,
Community, Syndicated Community and Public Offerings must be delivered in full
to the INSTITUTION, together with a properly completed and executed Order Form,
or Purchase Order in the case of the Syndicated Community or Public Offering, on
or prior to the expiration date specified on the Order Form or Purchase Order,
as the case may be, unless such date is extended by the INSTITUTION; provided,
however, that if the Employee Plans subscribes for shares during the
Subscription Offering, the Employee Plan will not be required to pay for the
shares at the time they subscribe but rather may pay for such shares of
Conversion Stock upon consummation of the Conversion. The INSTITUTION may make
scheduled discretionary contributions to an Employee Plan provided such
contributions do not cause the INSTITUTION to fail to meet its regulatory
capital requirement.
Notwithstanding the foregoing, the INSTITUTION and the Holding Company
shall have the right, in their sole discretion, to permit institutional
investors to submit contractually irrevocable orders in the Community or
Syndicated Community Offering and to thereafter submit payment for the
Conversion
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Stock for which they are subscribing in the Community or Syndicated Community
Offering at any time prior to the completion of the Conversion.
Payment for Conversion Stock subscribed for shall be made either in
cash (if delivered in person), check or money order. Alternatively, subscribers
in the Subscription and Community Offerings may pay for the shares subscribed
for by authorizing the INSTITUTION on the Order Form or Purchase Order to make a
withdrawal from the subscriber's Savings Account at the INSTITUTION in an amount
equal to the purchase price of such shares. Such authorized withdrawal, whether
from a savings passbook or certificate account, shall be without penalty as to
premature withdrawal. If the authorized withdrawal is from a certificate
account, and the remaining balance does not meet the applicable minimum balance
requirement, the certificate shall be canceled at the time of withdrawal,
without penalty, and the remaining balance will earn interest at the passbook
rate. Funds for which a withdrawal is authorized will remain in the subscriber's
Savings Account but may not be used by the subscriber until the Conversion Stock
has been sold or the 45-day period (or such longer period as may be approved by
the OTS) following the Subscription Offering has expired, whichever occurs
first. Thereafter, the withdrawal will be given effect only to the extent
necessary to satisfy the subscription (to the extent it can be filled) at the
Purchase Price per share. Interest will continue to be earned on any amounts
authorized for withdrawal until such withdrawal is given effect. Interest will
be paid by the INSTITUTION at not less than the passbook annual rate on payments
for Conversion Stock received in cash or by money order or check. Such interest
will be paid from the date payment is received by the INSTITUTION until
consummation or termination of the conversion. If for any reason the conversion
is not consummated, all payments made by subscribers in the Subscription,
Community, Syndicated Community and Public Offerings will be refunded to them
with interest. In case of amounts authorized for withdrawal from Savings
Accounts, refunds will be made by canceling the authorization for withdrawal.
The INSTITUTION is prohibited by regulation from knowingly making any
loans or granting any lines of credit for the purchase of stock in the
conversion and, therefore, will not do so.
16. MANNER OF EXERCISING SUBSCRIPTION RIGHTS THROUGH ORDER FORMS
As soon as practicable after the Prospectus prepared by the Holding
Company and INSTITUTION has been declared effective by the OTS and the SEC,
Order Forms will be distributed to the Participants at their last known
addresses appearing on the records of the INSTITUTION for the purpose of
subscribing to shares of Conversion Stock in the Subscription Offering and will
be made available for use in the Community Offering. Notwithstanding the
foregoing, the INSTITUTION may elect to send Order Forms only to those Persons
who request them after such notice as is approved by the OTS and is adequate to
apprise the Participants of the pendency of the Subscription Offering has been
given. Such notice may be included with the proxy statement for the Special
Meeting of Members and may also be included in a notice of the pendency of the
conversion and the Special Meeting of Members sent to all Eligible Account
Holders in accordance with regulations of the OTS.
Each Order Form or Purchase Order will be preceded or accompanied by
the Prospectus (if a holding company form of organization is utilized) or the
Offering Circular (if the holding company form of organization is not utilized)
describing the Holding Company (if utilized), the INSTITUTION, the Conversion
Stock and the Subscription, Community, Syndicated Community and Public
Offerings. Each Order Form and Purchase Order will contain, among other things,
the following:
A. A specified date by which all Order Forms and Purchase Orders must
be received by the INSTITUTION, which date shall be not less than twenty (20),
nor more than forty-five (45) days,
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following the date on which the Order Forms are mailed by the INSTITUTION, and
which date will constitute the termination of the Subscription Offering;
B. The purchase price per share for shares of Conversion Stock to be
sold in the Subscription, Community, Syndicated Community and Public Offerings;
C. A description of the minimum and maximum number of shares of
Conversion Stock which may be subscribed for pursuant to the exercise of
Subscription Rights or otherwise purchased in the Community, Syndicated
Community or Public Offerings;
D. Instructions as to how the recipient of the Order Form or Purchase
Order is to indicate thereon the number of shares of Conversion Stock for which
such person elects to subscribe and the available alternative methods of payment
therefor;
E. An acknowledgment that the recipient of the Order Form or Purchase
Order has received a final copy of the Prospectus or Offering Circular, as the
case may be, prior to execution of the Order Form or Purchase Order;
F. A statement to the effect that all subscription rights are
nontransferable, will be void at the end of the Subscription Offering, and can
only be exercised by delivering within the subscription period such properly
completed and executed Order Form or Purchase Order, together with cash (if
delivered in person), check or money order in the full amount of the purchase
price as specified in the Order Form for the shares of Conversion Stock for
which the recipient elects to subscribe in the Subscription Offering (or by
authorizing on the Order Form that the INSTITUTION withdraw said amount from the
subscriber's Savings Account at the INSTITUTION) to the INSTITUTION; and
G. A statement to the effect that the executed Order Form or Purchase
Order, once received by the INSTITUTION, may not be modified or amended by the
subscriber without the consent of the INSTITUTION.
Notwithstanding the above, the INSTITUTION and the Holding Company
reserve the right in their sole discretion to accept or reject orders received
on photocopied or facsimile order forms or whose payment is to be made by wire
transfer.
17. UNDELIVERED, DEFECTIVE OR LATE ORDER FORMS: INSUFFICIENT PAYMENT
In the event Order Forms or Purchase Orders (a) are not delivered and
are returned to the INSTITUTION by the United States Postal Service or the
INSTITUTION is unable to locate the addressee, (b) are not received back by the
INSTITUTION or are received by the INSTITUTION after the expiration date
specified thereon, (c) are defectively filled out or executed, (d) are not
accompanied by the full required payment, or, in the case of institutional
investors in the Community or Syndicated Community Offering, by delivering
irrevocable orders together with a legally binding commitment to pay in cash,
check, money order or wire transfer the full amount of the purchase price prior
to 48 hours before the completion of the conversion for the shares of Conversion
Stock subscribed for (including cases in which savings accounts from which
withdrawals are authorized are insufficient to cover the amount of the required
payment), or (e) are not mailed pursuant to a "no mail" order placed in effect
by the account holder, the subscription rights of the person to whom such rights
have been granted will lapse as though such person failed to return the
completed Order Form within the time period specified thereon; provided,
however, that the INSTITUTION may, but will not be required to, waive any
immaterial irregularity on any Order Form or Purchase Order or require the
submission of corrected Order Forms
15
<PAGE>
or Purchase Orders or the remittance of full payment for subscribed shares by
such date as the INSTITUTION may specify. The interpretation of the INSTITUTION
of terms and conditions of the Plan and of the Order Forms or Purchase Orders
will be final, subject to the authority of the OTS.
18. RESTRICTIONS ON RESALE OR SUBSEQUENT DISPOSITION
A. All shares of Conversion Stock purchased by Directors or Officers of
the INSTITUTION or the Holding Company in the conversion shall be subject to the
restriction that, except as provided in Section 18B, below, or as may be
approved by the OTS, no interest in such shares may be sold or otherwise
disposed of for value for a period of one (1) year following the date of
purchase.
B. The restriction on disposition of shares of Conversion Stock set
forth in Section 18A above shall not apply to the following:
(i) Any exchange of such shares in connection with a merger or
acquisition involving the INSTITUTION or the Holding Company, which has been
approved by the OTS; and
(ii) Any disposition of such shares following the death of the
person to whom such shares were initially sold under the terms of the Plan.
C. With respect to all shares of Conversion Stock subject to
restrictions on resale or subsequent disposition, each of the following
provisions shall apply;
(i) Each certificate representing shares restricted within the
meaning of Section 18A, above, shall bear a legend prominently stamped on its
face giving notice of the restriction;
(ii) Instructions shall be issued to the stock transfer agent
for the Holding Company not to recognize or effect any transfer of any
certificate or record of ownership of any such shares in violation of the
restriction on transfer; and
(iii) Any shares of capital stock of the Holding Company
issued with respect to a stock dividend, stock split, or otherwise with respect
to ownership of outstanding shares of Conversion Stock subject to the
restriction on transfer hereunder shall be subject to the same restriction as is
applicable to such Conversion Stock.
19. VOTING RIGHTS OF STOCKHOLDERS
Upon conversion, the holders of the capital stock of the INSTITUTION
shall have the exclusive voting rights with respect to the INSTITUTION as
specified in its charter. The holders of the common stock of the Holding Company
shall have the exclusive voting rights with respect to the Holding Company.
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<PAGE>
20. ESTABLISHMENT OF LIQUIDATION ACCOUNT
The INSTITUTION shall establish at the time of conversion a liquidation
account in an amount equal to its net worth as of the latest practicable date
prior to conversion. The liquidation account will be maintained by the
INSTITUTION for the benefit of the Eligible Account Holders and Supplemental
Eligible Account Holders who continue to maintain their Savings Accounts at the
INSTITUTION. Each Eligible Account Holder and Supplemental Eligible Account
Holder shall, with respect to his Savings Account, hold a related inchoate
interest in a portion of the liquidation account balance, in relation to his
Savings Account balance at the Eligibility Record Date and Supplemental
Eligibility Record Date or to such balance as it may be subsequently reduced, as
hereinafter provided.
In the unlikely event of a complete liquidation of the INSTITUTION (and
only in such event), following all liquidation payments to creditors (including
those to Account Holders to the extent of their Savings Accounts) each Eligible
Account Holder and Supplemental Eligible Account Holder shall be entitled to
receive a liquidating distribution from the liquidation account, in the amount
of the then adjusted subaccount balance for his Savings Account then held,
before any liquidation distribution may be made to any holders of the
INSTITUTION's capital stock. No merger, consolidation, purchase of bulk assets
with assumption of Savings Accounts and other liabilities, or similar
transactions with an FDIC institution, in which the INSTITUTION is not the
surviving institution, shall be deemed to be a complete liquidation for this
purpose. In such transactions, the liquidation account shall be assumed by the
surviving institution.
The initial subaccount balance for a Savings Account held by an
Eligible Account Holder or Supplemental Eligible Account Holder shall be
determined by multiplying the opening balance in the liquidation account by a
fraction, the numerator of which is the amount of such Eligible Account Holder's
and Supplemental Eligible Account Holder's Qualifying Deposit and the
denominator of which is the total amount of all Qualifying Deposits of all
Eligible Account Holders and Supplemental Eligible Account Holders in the
INSTITUTION. Such initial subaccount balance shall not be increased, but shall
be subject to downward adjustment as described below.
If, at the close of business on any annual closing date, commencing on
or after the effective date of conversion, the deposit balance in the Savings
Account of an Eligible Account Holder or Supplemental Eligible Account Holder is
less than the lesser of (i) the balance in the Savings Account at the close of
business on any other annual closing date subsequent to the Eligibility Record
Date or Supplemental Eligibility Record Date, as applicable, or (ii) the amount
of the Qualifying Deposit in such Savings Account, the subaccount balance of
such Savings Account shall be adjusted by reducing such subaccount balance in an
amount proportionate to the reduction in such deposit balance. In the event of
such downward adjustment, the subaccount balance shall not be subsequently
increased, notwithstanding any subsequent increase in the deposit balance of the
related Savings Account. If any such Savings Account is closed, the related
subaccount shall be reduced to zero.
The creation and maintenance of the liquidation account shall not
operate to restrict the use or application of any of the net worth accounts of
the INSTITUTION.
21. TRANSFER OF SAVINGS ACCOUNTS
Each person holding a Savings Account at the INSTITUTION at the time of
conversion shall retain an identical Savings Account at the INSTITUTION
following conversion in the same amount and subject to the same terms and
conditions (except as to voting and liquidation rights).
17
<PAGE>
22. RESTRICTIONS ON ACQUISITION OF THE INSTITUTION AND HOLDING COMPANY
A. In accordance with OTS regulations, for a period of three years from
the date of consummation of conversion, no Person, other than the Holding
Company, shall directly or indirectly offer to acquire or acquire the beneficial
ownership of more than 10% of any class of an equity security of the INSTITUTION
without the prior written consent of the OTS.
B.1. The charter of the INSTITUTION contains a provision stipulating
that no person, except the Holding Company, for a period of five years following
the date of conversion shall directly or indirectly offer to acquire or acquire
the beneficial ownership of more than 10% of any class of an equity security of
the INSTITUTION, without the prior written approval of the OTS. In addition,
such charter may also provide that for a period of five years following the
conversion, shares beneficially owned in violation of the above-described
charter provision shall not be entitled to vote and shall not be voted by any
person or counted as voting stock in connection with any matter submitted to
stockholders for a vote. In addition, special meetings of the stockholders
relating to changes in control or amendment of the charter may only be called by
the Board of Directors, and shareholders shall not be permitted to cumulate
their votes for the election of directors.
B.2. The Certificate of Incorporation of the Holding Company may
contain a provision stipulating that in no event shall any record owner of any
outstanding shares of the Holding Company's common stock who beneficially owns
in excess of 10% of such outstanding shares be entitled or permitted to any vote
in respect to any shares held in excess of 10%. In addition, the Certificate of
Incorporation and Bylaws of the Holding Company may provide for staggered terms
of the directors, noncumulative voting for directors, limitations on the calling
of special meetings, a fair price provision for certain business combinations
and certain notice requirements.
C. For the purposes of this Section 22, B.1.:
(i) The term "person" includes an individual, a group acting
in concert, a corporation, a partnership, an association, a joint stock company,
a trust, an unincorporated organization or similar company, a syndicate or any
other group formed for the purpose of acquiring, holding or disposing of
securities of an insured institution;
(ii) The term "offer" includes every offer to buy or acquire,
solicitation of an offer to sell, tender offer for, or request or invitation for
tenders of, a security or interest in a security for value;
(iii) The term "acquire" includes every type of acquisition,
whether effected by purchase, exchange, operation of law or otherwise; and
(iv) The term "security" includes non-transferable
subscription rights issued pursuant to a plan of conversion as well as a
"security" as defined in 15 U.S.C. ss.78c(a)(10).
23. PAYMENT OF DIVIDENDS AND REPURCHASES OF STOCK
The INSTITUTION shall not declare or pay a cash dividend on, or
repurchase any of, its capital stock if the effect thereof would cause its
regulatory capital to be reduced below (i) the amount required for the
Liquidation Account or (ii) the federal regulatory capital requirement in
Section 567.2 of the Rules and Regulations of the OTS. Otherwise, the
INSTITUTION or the Holding Company may declare
18
<PAGE>
dividends, repurchase capital stock or make capital distributions in accordance
with applicable law and regulations.
24. AMENDMENT OF PLAN
If deemed necessary or desirable, the Plan may be substantively amended
at any time prior to solicitation of proxies from Members to vote on the Plan by
a two-thirds vote of the INSTITUTION's Board of Directors, and at any time
thereafter by such vote of such Board of Directors with the concurrence of the
OTS. Any amendment to the Plan made after approval by the Members with the
approval of the OTS shall not necessitate further approval by the Members unless
otherwise required by the OTS. The Plan may be terminated by majority vote of
the INSTITUTION's Board of Directors at any time prior to the Special Meeting of
Members to vote on the Plan, and at any time thereafter with the concurrence of
the OTS.
By adoption of the Plan, the Members of the INSTITUTION authorize the
Board of Directors to amend or terminate the Plan under the circumstances set
forth in this Section.
25. CHARTER AND BYLAWS
By voting to adopt the Plan, members of the INSTITUTION will be voting
to adopt a charter and bylaws to read in the form of charter and bylaws for a
federally chartered stock institution. The effective date of the INSTITUTION's
amended charter and bylaws shall be the date of issuance and sale of the
Conversion Stock as specified by the OTS.
26. CONSUMMATION OF CONVERSION
The conversion of the INSTITUTION shall be deemed to take place and be
effective upon the completion of all requisite organizational procedures for
obtaining the federal stock charter for the INSTITUTION and sale of all
Conversion Stock.
27. REGISTRATION AND MARKETING
Within the time period required by applicable laws and regulations, the
Holding Company will register the securities issued in connection with the
conversion pursuant to the Securities Exchange Act of 1934 and will not
deregister such securities for a period of at least three years thereafter,
except that the maintenance of registration for three years requirement may be
fulfilled by any successor to the Holding Company. In addition, the Holding
Company will use its best efforts to encourage and assist a market-maker to
establish and maintain a market for the Conversion Stock and to list those
securities on a national or regional securities exchange or the NASDAQ System.
28. RESIDENTS OF FOREIGN COUNTRIES AND CERTAIN STATES
The INSTITUTION will make reasonable efforts to comply with the
securities laws of all States in the United States in which Persons entitled to
subscribe for shares of Conversion Stock pursuant to the Plan reside. However,
no such Person will be issued subscription rights or be permitted to purchase
shares of Conversion Stock in the Subscription Offering if such Person resides
in a foreign country or in a state of the United States with respect to which
any of the following apply: (i) a small number of Persons otherwise eligible to
subscribe for shares under the Plan reside in such state; (ii) the issuance of
subscription rights or the offer or sale of shares of Conversion Stock to such
Persons would require the INSTITUTION or the Holding Company, as the case may
be, under the securities laws of such state, to
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<PAGE>
register as a broker, dealer, salesman or agent or to register or otherwise
qualify its securities for sale in such state; or (iii) such registration or
qualification would be impracticable for reasons of cost or otherwise.
29. EXPENSES OF CONVERSION
The INSTITUTION shall use its best efforts to assure that expenses
incurred by it in connection with the conversion shall be reasonable.
30. CONDITIONS TO CONVERSION
The conversion of the INSTITUTION pursuant to this Plan is expressly
conditioned upon the following:
(a) Prior receipt by the INSTITUTION of rulings of the United States
Internal Revenue Service and the State of New Jersey taxing authorities, or
opinions of counsel, substantially to the effect that the conversion will not
result in any adverse federal or state tax consequences to Eligible Account
Holders or the INSTITUTION and the Holding Company before or after the
conversion;
(b) The sale of all of the Conversion Stock offered in the conversion;
and
(c) The completion of the conversion within the time period specified
in Section 3 of this Plan.
31. INTERPRETATION
All interpretations of this Plan and application of its provisions to
particular circumstances by a majority of the Board of Directors of the
INSTITUTION shall be final, subject to the authority of the OTS.
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EXHIBIT 3.(i)
<PAGE>
CERTIFICATE OF INCORPORATION
OF
FARNSWORTH BANCORP, INC.
ARTICLE I
Name
----
The name of the corporation is Farnsworth Bancorp, Inc. (herein the
"Corporation").
ARTICLE II
Registered Office
-----------------
The address of the Corporation's registered office in the State of New
Jersey is 789 Farnsworth Avenue, Bordentown, New Jersey, in the County of
Burlington. The name of the Corporation's registered agent at such address is
Gary N. Pelehaty.
ARTICLE III
Powers
------
The purpose of the Corporation is to engage in any activity within the
purposes for which corporations may be organized under 14A:2-7 of the New Jersey
Business Corporation Act.
ARTICLE IV
Term
----
The Corporation is to have perpetual existence.
ARTICLE V
Incorporator
------------
The name and mailing address of the Incorporator is as follows:
Name Mailing Address
---- ---------------
Gary N. Pelehaty 789 Farnsworth Avenue
Bordentown, New Jersey 08505
<PAGE>
ARTICLE VI
Initial Directors
-----------------
The number of directors constituting the initial board of directors of
the Corporation is seven (7) and the names and addresses of the persons who are
to serve as directors until their successors are elected and qualified, are:
Name Mailing Address
---- ---------------
Gary N. Pelehaty 789 Farnsworth Avenue
Bordentown, New Jersey 08505
George G. Aaronson, Jr. 789 Farnsworth Avenue
Bordentown, New Jersey 08505
Edgar N. Peppler 789 Farnsworth Avenue
Bordentown, New Jersey 08505
Charles E. Adams 789 Farnsworth Avenue
Bordentown, New Jersey 08505
Herman Gutstein 789 Farnsworth Avenue
Bordentown, New Jersey 08505
William H. Wainwright 789 Farnsworth Avenue
Bordentown, New Jersey 08505
G. Edward Koenig, Jr. 789 Farnsworth Avenue
Bordentown, New Jersey 08505
ARTICLE VII
Capital Stock
-------------
The aggregate number of shares of all classes of capital stock which
the Corporation has authority to issue is 6,000,000 of which 5,000,000 are to be
shares of common stock, $.10 par value per share, and of which 1,000,000 are to
be shares of serial preferred stock, $.10 par value per share. The shares may be
issued by the Corporation without the approval of stockholders except as
otherwise provided in this Article VII or the rules of a national securities
exchange, if applicable. The consideration for the issuance of the shares shall
be paid to or received by the Corporation in full before their issuance and
shall not be less than the par value per share. The consideration for the
issuance of the shares shall be cash, services rendered, personal property
(tangible or intangible), real property, leases of real property or any
combination of the foregoing. In the absence of actual fraud in the transaction,
the judgment of the board of directors as to the value of such consideration,
shall be conclusive. Upon payment of such consideration, such shares shall be
deemed to be fully paid and nonassessable. In the case of a stock dividend, the
part of the surplus of the Corporation which is transferred to stated capital
upon the issuance of shares as a stock dividend shall be deemed to be the
consideration for their issuance.
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<PAGE>
A description of the different classes and series (if any) of the
Corporation's capital stock, and a statement of the relative powers,
designations, preferences and rights of the shares of each class and series (if
any) of capital stock, and the qualifications, limitations or restrictions
thereof, are as follows:
A. Common Stock. Except as provided in this Certificate, the holders of
the common stock shall exclusively possess all voting power. Each holder of
shares of common stock shall be entitled to one vote for each share held by such
holders.
Whenever there shall have been paid, or declared and set aside for
payment, to the holders of the outstanding shares of any class of stock having
preference over the common stock as to the payment of dividends, the full amount
of dividends and sinking fund or retirement fund or other retirement payments,
if any, to which such holders are respectively entitled in preference to the
common stock, then dividends may be paid on the common stock, and on any class
or series of stock entitled to participate therewith as to dividends, out of any
assets legally available for the payment of dividends, but only when as declared
by the board of directors of the Corporation.
In the event of any liquidation, dissolution or winding up of the
Corporation, after there shall have been paid, or declared and set aside for
payment, to the holders of the outstanding shares of any class having preference
over the common stock, the full preferential amounts to which they are
respectively entitled, the holders of the common stock and of any class or
series of stock entitled to participate therewith, in whole or in part, as to
distribution of assets shall be entitled, after payment or provision for payment
of all debts and liabilities of the Corporation, to receive the remaining assets
of the Corporation available for distribution, in cash or in kind.
Each share of common stock shall have the same relative powers,
preferences and rights as, and shall be identical in all respects with, all the
other shares of common stock of the Corporation.
B. Serial Preferred Stock. Except as provided in this Certificate, the
board of directors of the Corporation is authorized, by resolution or
resolutions from time to time adopted, to provide for the issuance of serial
preferred stock in series and to fix and state the powers, designations,
preferences and relative, participating, optional or other special rights of the
shares of such series, and the qualifications, limitations or restrictions
thereof, including, but not limited to determination of any of the following:
1. the distinctive serial designation and the number of shares
constituting such series; and
2. the dividend rates or the amount of dividends to be paid on the
shares of such series, whether dividends shall be cumulative and, if so, from
which date or dates, the payment date or dates for dividends, and the
participating or other special rights, if any, with respect to dividends; and
3. the voting powers, full or limited, if any, of the shares of such
series; and
4. whether the shares of such series shall be redeemable and, if so,
the price or prices at which, and the terms and conditions upon which, such
shares may be redeemed; and
5. the amount or amounts payable upon the shares of such series in the
event of voluntary or involuntary liquidation, dissolution or winding up of the
Corporation; and
3
<PAGE>
6. whether the shares of such series shall be entitled to the benefits
of a sinking or retirement fund to be applied to the purchase or redemption of
such shares, and, if so entitled, the amount of such fund and the manner of its
application, including the price or prices at which such shares may be redeemed
or purchased through the application of such funds; and
7. whether the shares of such series shall be convertible into, or
exchangeable for, shares of any other class or classes or any other series of
the same or any other class or classes of stock of the Corporation and, if so
convertible or exchangeable, the conversion price or prices, or the rate or
rates of exchange, and the adjustments thereof, if any, at which such conversion
or exchange may be made, and any other terms and conditions of such conversion
or exchange; and
8. the subscription or purchase price and form of consideration for
which the shares of such series shall be issued; and
9. whether the shares of such series which are redeemed or converted
shall have the status of authorized but unissued shares of serial preferred
stock and whether such shares may be reissued as shares of the same or any other
series of serial preferred stock.
Each share of each series of serial preferred stock shall have the same
relative powers, preferences and rights as, and shall be identical in all
respects with, all the other shares of the Corporation of the same series.
ARTICLE VIII
Preemptive Rights
-----------------
No holder of any of the shares of any class or series of capital stock
or of options, warrants or other rights to purchase shares of any class or
series of stock or of other securities of the Corporation shall have any
preemptive right to purchase or subscribe for any unissued stock of any class or
series, or any unissued bonds, certificates of indebtedness, debentures of other
securities convertible into or exchangeable for stock of any class or series or
carrying any right to purchase stock of any class or series; but any such
unissued stock, bonds, certificates or indebtedness, debentures or other
securities convertible into or exchangeable for stock or carrying any right to
purchase stock may be issued pursuant to resolution of the board of directors of
the Corporation to such persons, firms, corporations or associations, whether or
not holders thereof, and upon such terms as may be deemed advisable by the board
of directors in the exercise of its sole discretion.
ARTICLE IX
Repurchase of Shares
--------------------
The Corporation may from time to time, pursuant to authorization by the
board of directors of the Corporation and without action by the stockholders,
purchase or otherwise acquire shares of capital stock of any class, bonds,
debentures, notes, script, warrants, obligations, evidences of indebtedness, or
other securities of the Corporation in such manner, upon such terms, and in such
amounts as the board of directors shall determine; subject, however, to such
limitations or restrictions, if any, as are contained in the express terms of
any class of shares of the Corporation outstanding at the time of the purchase
or acquisition or as are imposed by law or regulation.
4
<PAGE>
ARTICLE X
Meetings of Stockholders; Cumulative Voting; Proxies
----------------------------------------------------
A. Notwithstanding any other provision of this Certificate or the
Bylaws of the Corporation, any action required to be taken or which may be taken
at any annual or special meeting of stockholders of the Corporation may be taken
without a meeting, if all shareholders entitled to vote thereon consent thereto
in writing. The power of shareholders to take action by non-unanimous consent is
specifically denied. In the case of a merger, consolidation, acquisition of all
capital shares of the Corporation or sale of assets, such action may be taken
without a meeting only if all shareholders consent in writing, or if all
shareholders entitled to vote consent in writing and all other shareholders are
provided the advance notification required by Section 14A: 5-6(2)(b) of the New
Jersey Business Corporation Act.
B. Special meetings of the stockholders of the Corporation for any
purpose or purposes may be called at any time by the President of the
Corporation, by a majority of the board of directors of the Corporation, or by a
committee of the board of directors which has been duly designated by the board
of directors and whose powers and authorities, as provided in a resolution of
the board of directors or in the Bylaws of the Corporation, include the power
and authority to call such meetings, but such special meetings may not be called
by any other person or persons.
C. Each stockholder entitled to vote at a meeting of stockholders or to
express consent or dissent to corporate action in writing without a meeting may
authorize another person or persons to act for him or her by proxy, but no such
proxy shall be voted or acted upon after eleven months from its date, unless the
proxy provides for a longer period. To be valid, a proxy must be executed and
authorized as required or permitted by law.
D. There shall be no cumulative voting by stockholders of any class or
series in the election of directors of the Corporation.
E. Meetings of stockholders may be held within or outside the State of
New Jersey, as the Bylaws may provide.
F. The presence, in person or by proxy, of the holders of a majority of
the outstanding shares of voting stock shall constitute a quorum at a meeting of
stockholders.
ARTICLE XI
Notice for Nominations and Proposals
------------------------------------
Advance notice of stockholder nominations for the election of directors
and of business to be brought by stockholders before any meeting of the
stockholders of the Corporation shall be given in the manner provided in the
Bylaws of the Corporation.
5
<PAGE>
ARTICLE XII
Directors
---------
A. Number; Vacancies. The number of directors of the Corporation shall
be such number as shall be provided from time to time in or in accordance with
the Bylaws, provided that a decrease in the number of directors shall not have
the effect of shortening the term of any incumbent director, and provided
further that no action shall be taken to decrease or increase the number of
directors from time to time unless at least two-thirds of the directors then in
office shall concur in said action. Vacancies in the board of directors of the
Corporation, however caused, and newly-created directorships shall be filled by
a vote of a majority of the directors then in office, whether or not a quorum,
or by a sole remaining director, and any director so chosen shall hold office
for a term expiring at the next annual meeting of stockholders.
B. Classified Board. The board of directors of the Corporation shall be
divided into three classes of directors which shall be designated Class I, Class
II and Class III. The members of each class shall be elected for a term of three
years and until their successors are elected and qualified. Such classes shall
be as nearly equal in number as the then total number of directors constituting
the entire board of directors shall permit, with the terms of office of all
members of one class expiring each year. At the first annual meeting of
stockholders, directors in Class I shall be elected to hold office for a term
expiring at the third succeeding annual meeting thereafter. At the second annual
meeting of stockholders, directors of Class II shall be elected to hold office
for a term expiring at the third succeeding meeting thereafter. At the third
annual meeting of stockholders, directors of Class III shall be elected to hold
office for a term expiring at the third succeeding annual meeting thereafter.
Thereafter, at each succeeding annual meeting, directors whose term shall expire
at any annual meeting shall continue to serve until such time as his or her
successor shall have been duly elected and shall have qualified unless his or
her position on the board of directors shall have been abolished by action taken
to reduce the size of the board of directors prior to said meeting.
If the number of directors of the Corporation is reduced, the
directorship(s) eliminated shall be allocated among classes as appropriate so
that the number of directors in each class is as specified in the immediately
preceding paragraph. The board of directors shall designate, by the name of the
incumbent(s), the position(s) to be abolished. Notwithstanding the foregoing, no
decrease in the number of directors shall have the effect of shortening the term
of any incumbent director. If the number of directors of the Corporation is
increased, the additional directorships shall be allocated among classes as
appropriate so that the number of directors in each class is as specified in the
immediately preceding paragraph.
Whenever the holders of any one or more series of preferred stock of
the Corporation shall have the right, voting separately as a class, to elect one
or more directors of the Corporation, the board of directors shall consist of
said directors so elected in addition to the number of directors fixed as
provided above in this Article XII. Notwithstanding the foregoing, and except as
otherwise may be required by law, whenever the holders of any one or more series
of preferred stock of the Corporation shall have the right, voting separately as
a class, to elect one or more directors of the Corporation, the terms of the
director or directors elected by such holders shall expire at the next
succeeding annual meeting of stockholders.
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ARTICLE XIII
Removal of Directors
--------------------
Notwithstanding any other provision of this Certificate or the Bylaws
of the Corporation, any director or the entire board of directors of the
Corporation may be removed for cause, at any time, by the affirmative vote of
the holders of at least 80% of the outstanding shares of capital stock of the
Corporation entitled to vote generally in the election of directors (considered
for this purpose as one class) cast at a meeting of the stockholders called for
that purpose. In addition, the board of directors shall have the power to remove
directors for cause and to suspend directors pending a final determination that
cause exists for removal.
ARTICLE XIV
Certain Limitations on Voting Rights
------------------------------------
Notwithstanding any other provision of this Certificate of
Incorporation, in no event shall any record owner of any outstanding Common
Stock which is beneficially owned, directly or indirectly, by a person who, as
of any record date for the determination of stockholders entitled to vote on any
matter, beneficially owns in excess of 10% of the then-outstanding shares of
Common Stock (the "Limit"), be entitled, or permitted to any vote in respect of
the shares held in excess of the Limit. The number of votes which may be cast by
any record owner by virtue of the provisions hereof in respect of Common Stock
beneficially owned by such person owning shares in excess of the Limit shall be
a number equal to the total number of votes which a single record owner of all
Common Stock owned by such person would be entitled to cast, multiplied by a
fraction, the numerator of which is the number of shares of such class or series
which are both beneficially owned by such person and owned of record by such
record owner and the denominator of which is the total number of shares of
Common Stock beneficially owned by such person owning shares in excess of the
Limit.
Further, for a period of five years from the completion of the
conversion of Peoples Savings Bank from mutual to stock form, no Person shall
directly or indirectly Offer to acquire or acquire the beneficial ownership of
more than 10% of any class of any equity security of the Corporation.
A. The following definitions shall apply to this Article XIV.
1. "Affiliate" shall have the meaning ascribed to it in Rule 12b-2 of
the General Rules and Regulations under the Securities Exchange Act of 1934, as
in effect on the date of filing of this Certificate.
2. "Beneficial Ownership" (including beneficially owned) shall be
determined pursuant to Rule 13d-3 of the General Rules and Regulations under the
Securities Exchange Act of 1934 (or any successor rule or statutory provision),
or, if said Rule 13d-3 shall be rescinded and there shall be no successor rule
or provision thereto, pursuant to said Rule 13d-3 as in effect on the date of
filing of this Certificate of Incorporation; provided, however, that a person
shall, in any event, also be deemed the "beneficial owner" of any Common Stock:
(1) which such person or any of its affiliates beneficially owns,
directly or indirectly; or
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(2) which such person or any of its affiliates has (i) the right
to acquire (whether such right is exercisable immediately or
only after the passage of time), pursuant to any agreement,
arrangement or understanding (but shall not be deemed to be
the beneficial owner of any voting shares solely by reason of
an agreement, contract, or other arrangement with this
Corporation to effect any transaction which is described in
any one or more of sections of Article XV) or upon the
exercise of conversion rights, exchange rights, warrants, or
options or otherwise, or (ii) sole or shared voting or
investment power with respect thereto pursuant to any
agreement, arrangement, understanding, relationship or
otherwise (but shall not be deemed to be the beneficial owner
of any voting shares solely by reason of a revocable proxy
granted for a particular meeting of stockholders, pursuant to
a public solicitation of proxies for such meeting, with
respect to shares of which neither such person nor any such
affiliate is otherwise deemed the beneficial owner); or
(3) which are beneficially owned, directly or indirectly, by any
other person with which such first mentioned person or any of
its affiliates acts as a partnership, limited partnership,
syndicate or other group pursuant to any agreement,
arrangement or understanding for the purpose of acquiring,
holding, voting or disposing of any shares of capital stock of
this Corporation;
and provided further, however, that (1) no Director or Officer of this
Corporation (or any affiliate of any such Director or Officer) shall, solely by
reason of any or all of such Directors or Officers acting in their capacities as
such, be deemed, for any purposes hereof, to beneficially own any Common Stock
beneficially owned by any other such Director or Officer (or any affiliate
thereof), and (2) neither any employee stock ownership or similar plan of this
Corporation or any subsidiary of this Corporation, nor any trustee with respect
thereto or any affiliate of such trustee (solely by reason of such capacity of
such trustee), shall be deemed, for any purposes hereof, to beneficially own any
Common Stock held under any such plan. For purposes of computing the percentage
beneficial ownership of Common Stock of a person, the outstanding Common Stock
shall include shares deemed owned by such person through application of this
subsection but shall not include any other Common Stock which may be issuable by
this Corporation pursuant to any agreement, or upon exercise of conversion
rights, warrants or options, or otherwise. For all other purposes, the
outstanding Common Stock shall include only Common Stock then outstanding and
shall not include any Common Stock which may be issuable by this Corporation
pursuant to any agreement, or upon the exercise of conversion rights, warrants
or options, or otherwise.
3. "Continuing Directors" shall mean those members of the Board of
Directors who were directors prior to the time when the Interested stockholder
became an Interested stockholder.
4. The term "Offer" shall mean every written offer to buy or acquire,
solicitation of an offer to sell, tender offer or request or invitation for
tender of, a security or interest in a security for value; provided that the
term "Offer" shall not include (i) inquiries directed solely to the management
of the Corporation and not intended to be communicated to stockholders which are
designed to elicit an indication of management's receptivity to the basic
structure of a potential acquisition with respect to the amount of cash and/or
securities, manner of acquisition and formula for determining price, or (ii)
non-binding expressions of understanding or letters of intent with the
management of the Corporation regarding the basic structure of a potential
acquisition with respect to the amount of cash and/or securities, manner of
acquisition and formula for determining price.
5. A "person" shall mean any individual, firm, corporation, or other
entity.
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B. The Board of Directors shall have the power to construe and apply
the provisions of this Article XIV and to make all determinations necessary or
desirable to implement such provisions, including but not limited to matters
with respect to (i) the number of shares of Common Stock beneficially owned by
any person, (ii) whether a person is an affiliate of another, (iii) whether a
person has an agreement, arrangement, or understanding with another as to the
matters referred to in the definition of beneficial ownership, (iv) the
application of any other definition or operative provision of the section to the
given facts, or (v) any other matter relating to the applicability or effect of
this Article XIV. Any constructions, applications, or determinations made by the
directors pursuant to this Article XIV in good faith and on the basis of such
information and assistance as was then reasonably available for such purpose
shall be conclusive and binding upon the Corporation and its stockholders.
C. The Board of Directors shall have the right to demand that any
person who is reasonably believed to beneficially own Common Stock in excess of
the Limit (or holders of record of Common Stock beneficially owned by any person
in excess of the Limit) ("Holder in Excess") supply the Corporation with
complete information as to (i) the record owner(s) of all shares beneficially
owned by such person who is reasonably believed to own shares in excess of the
Limit, (ii) any other factual matter relating to the applicability or effect of
this Article XIV as may reasonably be requested of such person. The Board of
Directors shall further have the right to receive from any Holder in Excess
reimbursement for all expenses incurred by the Board in connection with its
investigation of any matters relating to the applicability or effect of this
section on such Holder in Excess, to the extent such investigation is deemed
appropriate by the Board of Directors as a result of the Holder in Excess
refusing to supply the Corporation with the information described in the
previous sentence.
D. Except as otherwise provided by law or expressly provided in this
Article XIV, the presence in person or by proxy, of the holders of record of
shares of capital stock of the Corporation entitling the holders thereof to cast
a majority of the votes (after giving effect, if required, to the provisions of
this Article XIV) entitled to be cast by the holders of shares of capital stock
of the Corporation entitled to vote shall constitute a quorum at all meetings of
the stockholders, and every reference in this Certificate of Incorporation to a
majority or other proportion of capital stock (or the holders thereof) for
purposes of determining any quorum requirement or any requirement for
stockholder consent or approval shall be deemed to refer to such majority or
other proportion of the votes (or the holders thereof) then entitled to be cast
in respect of such capital stock.
E. The provisions of this Article XIV shall not be applicable to any
tax-qualified defined benefit plan or defined contribution plan of the
Corporation or its subsidiaries or to the Offer to acquire or the acquisition of
more than 10% of any class of equity security of the Corporation if such Offer
to acquire or acquisition has been approved by a majority of the Corporation's
Continuing Directors.
F. In the event any provision (or portion thereof) of this Article XIV
shall be found to be invalid, prohibited or unenforceable for any reason, the
remaining provisions (or portions thereof) of this Article XIV shall remain in
full force and effect, and shall be construed as if such invalid, prohibited or
unenforceable provision had been stricken here from or otherwise rendered
inapplicable, it being the intent of this Corporation and its stockholders that
each such remaining provision (or portion thereof) of this Article XIV remain,
to the fullest extent permitted by law, applicable and enforceable as to all
stockholders, including stockholders owning an amount of stock over the Limit,
notwithstanding any such finding.
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ARTICLE XV
Approval of Business Combinations
---------------------------------
A. Definitions and Related Matters. For the purposes of this
Article XV and as otherwise expressly referenced hereto in this Certificate of
Incorporation:
1. "Affiliate" means a person that directly, or indirectly
through one or more intermediaries, controls, or is controlled by, or is under
common control with, a specified person.
2. "Announcement date," when used in reference to any business
combination, means the date of the first public announcement of the final,
definitive proposal for that business combination.
3. "Associate," when used to indicate a relationship with any
person, means (1) any corporation or organization of which that person is an
officer or partner or is, directly or indirectly, the beneficial owner of 10% or
more of any class of voting stock, (2) any trust or other estate in which that
person has a substantial beneficial interest or as to which that person serves
as trustee or in a similar fiduciary capacity, or (3) any relative or spouse of
that person, or any relative of that spouse, who has the same home as that
person.
4. "Beneficial owner," when used with respect to any stock,
means a person:
(1) that, individually or with or through any of its
affiliates or associates, beneficially owns that stock, directly or indirectly;
(2) that, individually or with or through any of its
affiliates or associates, has (a) the right to acquire that stock (whether that
right is exercisable immediately or only after the passage of time), pursuant to
any agreement, arrangement or understanding (whether or not in writing), or upon
the exercise of conversion rights, exchange rights, warrants or options, or
otherwise; provided, however, that a person shall not be deemed the beneficial
owner of stock tendered pursuant to a tender or exchange offer made by that
person or any of that person's affiliates or associates until that tendered
stock is accepted for purchase or exchange; or (b) the right to vote that stock
pursuant to any agreement, arrangement or understanding (whether or not in
writing); provided, however, that a person shall not be deemed the beneficial
owner of any stock under this subparagraph if the agreement, arrangement or
understanding to vote that stock (i) arises solely from a revocable proxy or
consent given in response to a proxy or consent solicitation made in accordance
with the applicable rules and regulations under the Exchange Act, and (ii) is
not then reportable on a Schedule 13D under the Exchange Act (or any comparable
or successor report); or
(3) that has any agreement, arrangement or
understanding (whether or not in writing), for the purpose of acquiring,
holding, voting (except voting pursuant to a revocable proxy or consent as
described in subparagraph (b) of paragraph (2) of this subsection, or disposing
of that stock with any other person that beneficially owns, or whose affiliates
or associates beneficially own, directly or indirectly, that stock.
5. "Business combination," when used in reference to the
Corporation and any interested stockholder of the Corporation, means:
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(1) any merger or consolidation of the Corporation or
any subsidiary of the Corporation with (a) that interested stockholder or (b)
any other corporation (whether or not it is an interested stockholder of the
Corporation) which is, or after a merger or consolidation would be, an affiliate
or associate of that interested stockholder;
(2) any sale, lease, exchange, mortgage, pledge,
transfer or other disposition (in one transaction or a series of transactions)
to or with that interested stockholder or any affiliate or associate of that
interested stockholder of assets of the Corporation or any subsidiary of the
Corporation (a) having an aggregate market value equal to 10% or more of the
aggregate market value of all the assets, determined on a consolidated basis, of
the Corporation, (b) having an aggregate market value equal to 10% or more of
the aggregate market value of all the outstanding stock of the Corporation, or
(c) representing 10% or more of the earnings power or income, determined on a
consolidated basis, of the Corporation;
(3) the issuance or transfer by the Corporation
or any subsidiary of the Corporation (in one transaction or a series of
transactions) of any stock of the corporation or any subsidiary of the
Corporation which has an aggregate market value equal to 5% or more of the
aggregate market value of all the outstanding stock of the Corporation to that
interested stockholder or any affiliate or associate of that interested
stockholder, except pursuant to the exercise of warrants or rights to purchase
stock offered, or a dividend or distribution paid or made, pro rata to all
stockholders of the Corporation;
(4) the adoption of any plan or proposal for the
liquidation or dissolution of the Corporation proposed by, on behalf of or
pursuant to any agreement, arrangement or understanding (whether or not in
writing) with that interested stockholder or any affiliate or associate of that
interested stockholder;
(5) any reclassification of securities (including,
without limitation, any stock split, stock dividend, or other distribution of
stock in respect of stock, or any reverse stock split), or recapitalization of
the corporation, or any merger or consolidation of the Corporation with any
subsidiary of the Corporation, or any other transaction (whether or not with, or
into, or otherwise involving that interested stockholder), proposed by, on
behalf of or pursuant to any agreement, arrangement or understanding (whether or
not in writing) with that interested stockholder or any affiliate or associate
of that interested stockholder, which has the effect, directly or indirectly, of
increasing the proportionate share of the outstanding shares of any class or
series of stock or securities convertible into voting stock of the Corporation
or any subsidiary of the Corporation which is directly or indirectly owned by
that interested stockholder or any affiliate or associate of that interested
stockholder, except as a result of immaterial changes due to fractional share
adjustments; or
(6) any receipt by that interested stockholder or
any affiliate or associate of that interested stockholder of the benefit,
directly or indirectly (except proportionately as a stockholder of the
Corporation), of any loans, advances, guarantees, pledges or other financial
assistance or any tax credits or other tax advantages provided by or through the
Corporation; provided, however, that the term "business combination" shall not
be deemed to include the receipt of any of the foregoing benefits by the
Corporation or any of the Corporation's affiliates arising from transactions
(such as intercompany loans or tax sharing arrangements) between the Corporation
and its affiliates in the ordinary course of business.
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6. "Common stock" means any stock other than preferred stock.
7. "Consummation date," with respect to any business
combination, means the date of consummation of that business combination.
8. "Control," including terms "controlling" "controlled by"
and "under common control with," means the possession, directly or indirectly,
of the power to direct or cause the direction of the management and policies of
a person, whether through the ownership of voting stock, by contract, or
otherwise. A person's beneficial ownership of 10% or more of the voting power of
the Corporation's voting stock shall create a presumption that person has
control of the Corporation. Notwithstanding the foregoing in this subsection, a
person shall not be deemed to have control of a corporation if that person holds
voting power, in good faith and not for the purpose of circumventing this
section, as an agent, bank, broker, nominee, custodian or trustee for one or
more beneficial owners who do not individually or as a group have control of the
Corporation.
9. "Exchange Act" means the "Securities Exchange Act of 1934,"
(15 U.S.C. ss.78a et seq.) as the same has been or hereafter may be amended from
time to time.
10. "Interested stockholder," when used in reference to the
Corporation, means any person (other than the Corporation or any subsidiary of
the Corporation) that:
(1) is the beneficial owner, directly or indirectly,
of 10% or more of the voting power of the outstanding voting stock of the
Corporation; or
(2) is an affiliate or associate of the Corporation
and at any time within the five-year period immediately prior to the date in
question was the beneficial owner, directly or indirectly, of 10% or more of the
voting power of the then outstanding stock of the Corporation. For the purpose
of determining whether a person is an interested stockholder pursuant to this
subsection, the number of shares of voting stock of the Corporation deemed to be
outstanding shall include shares deemed to be beneficially owned by the person
through application of subsection A.4 of this Article but shall not include any
other unissued shares of voting stock of the Corporation which may be issuable
pursuant to any agreement, arrangement or understanding, or upon exercise of
conversion rights, warrants or options, or otherwise.
(3) is an assignee of or has otherwise succeeded to
any shares of voting stock which were at any time within the two-year period
immediately prior to the date in question beneficially owned by any Interested
Stockholder, if such assignment or succession shall have occurred in the course
of a transaction or series of transactions not involving a public offering
within the meaning of the Securities Act of 1933.
11. "Market value," when used in reference to property of the
Corporation, means:
(1) in the case of stock, the highest closing sales
price of the stock during the 30 day period immediately preceding the date in
question, on the principal United States securities exchange registered under
the Exchange Act on which that stock is listed, or, if that stock is not listed
on any such exchange, the highest closing bid quotation with respect to a share
of that stock during the 30-day period preceding the date in question on the
National Association of Securities Dealers, Inc. Automated Quotation System, or
any system then in use, or if no such quotations are available, the fair
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market value on the date in question of a share of the Corporation's stock as
determined by the board of directors of the Corporation in good faith; and
(2) in the case of property other than cash or stock,
the fair market value of that property on the date in question as determined by
the board of directors of the Corporation in good faith.
12. "Stock" means:
(1) any stock or similar security, any certificate
of interest, any participation in any profit sharing agreement, any voting trust
certificate, or any certificate of deposit for stock; and
(2) any security convertible, with or without
consideration, into stock, or any warrant, call or other option or privilege of
buying stock without being bound to do so, or any other security carrying any
right to acquire, subscribe to or purchase stock.
13. "Stock acquisition date," with respect to any person and
the Corporation, means the date that such person first becomes an interested
stockholder of the Corporation.
14. "Subsidiary" of the Corporation means any other
corporation of which voting stock having a majority of the votes entitled to be
cast is owned, directly or indirectly, by the Corporation.
15. "Voting stock" means shares of capital stock of the
Corporation entitled to vote generally in the election of directors.
B. Approval of Business Combinations.
The Corporation shall not engage in a business combination with any
interested stockholder for a period of five years following that interested
stockholder's stock acquisition date unless the business combination is approved
by the board of directors prior to the interested stockholder's stock
acquisition date.
In addition, the Corporation shall not engage in any business
combination with any interested stockholder of the Corporation at any time
unless one of the following three conditions are met:
1. the business combination is approved by the board of directors of
the Corporation prior to that interested stockholder's stock acquisition date
and thereafter approved by stockholders in accordance with applicable law.
2. the business combination is approved by the affirmative vote of the
holders of at least 80% of the voting stock not beneficially owned by that
interested stockholder at a meeting called for such purpose.
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3. the business combination meets all of the following conditions:
(1) the aggregate amount of the cash and the market value, as
of the consummation date, of consideration other than cash to be received per
share by holders of outstanding shares of common stock of the Corporation in
that business combination is at least equal to the higher of the following:
(a) the highest per share price (including any
brokerage commissions, transfer taxes and soliciting dealers' fees) paid by that
interested stockholder for any shares of common stock of the same class or
series acquired by it (i) within the five-year period immediately prior to the
announcement date with respect to that business combination, or (ii) within the
five-year period immediately prior to, or in, the transaction in which that
interested stockholder became an interested stockholder, whichever is higher;
plus, in either case, interest compounded annually from the earliest date on
which that highest per share acquisition price was paid through the consummation
date at the rate for one-year United States Treasury obligations from time to
time in effect; less the aggregate amount of any cash dividends paid, and the
market value of any dividends paid other than in cash, per share of common stock
since that earliest date, up to the amount of that interest; and
(b) the market value per share of common stock on
the announcement date with respect to that business combination or on that
interested stockholder's stock acquisition date, whichever is higher; plus
interest compounded annually from that date through the consummation date at the
rate for one-year United States Treasury obligations from time to time in
effect; less the aggregate amount of any cash dividends paid, and the market
value of any dividends paid other than in cash, per share of common stock since
that date, up to the amount of that interest;
(2) the aggregate amount of the cash and the market value as
of the consummation date of consideration other than cash to be received per
share by holders of outstanding shares of any class or series of stock, other
than common stock, of the Corporation is at least equal to the highest of the
following (whether or not that interested stockholder has previously acquired
any shares of that class or series of stock):
(a) the highest per share price (including any
brokerage commissions, transfer taxes and soliciting dealers' fees) paid by that
interested stockholder for any shares of that class or series of stock acquired
by it (i) within the five-year period immediately prior to the announcement date
with respect to that business combination, or (ii) within the five-year period
immediately prior to, or in, the transaction in which that interested
stockholder became an interested stockholder, whichever is higher; plus, in
either case, interest compounded annually from the earliest date on which the
highest per share acquisition price was paid through the consummation date at
the rate for one-year United States Treasury obligations from time to time in
effect; less the aggregate amount of any cash dividends paid, and the market
value of any dividends paid other than in cash, per share of that class or
series of stock since that earliest date, up to the amount of that interest;
(b) the highest preferential amount per share to
which the holders of shares of that class or series of stock are entitled in the
event of any liquidation, dissolution or winding up of the Corporation, plus the
aggregate amount of any dividends declared or due at to which those holders are
entitled prior to payment of dividends on some other class or series of stock
(unless the aggregate amount of those dividends is included in that preferential
amount); and
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(c) the market value per share of that class or
series of stock on the announcement date with respect to that business
combination or on that interested stockholder's stock acquisition date,
whichever is higher; plus interest compounded annually from that date through
the consummation date at the rate for one-year United States Treasury
obligations from time to time in effect; less the aggregate amount of any cash
dividends paid, and the market value of any dividends paid other than in cash,
per share of that class or series of stock since that date, up to the amount of
that interest;
(3) the consideration to be received by holders of a
particular class or series of outstanding stock (including common stock) of the
Corporation in that business combination is in cash or in the same form as the
interested stockholder has used to acquire the largest number of shares of that
class or series of stock previously acquired by it;
(4) the holders of all outstanding shares of stock of the
Corporation not beneficially owned by that interested stockholder immediately
prior to the consummation of that business combination are entitled to receive
in that business combination cash or other consideration for those shares in
compliance with paragraphs (1), (2) and (3) of this subsection; and
(5) after that interested stockholder's stock acquisition date
and prior to the consummation date with respect to that business combination,
that interested stockholder has not become the beneficial owner of any
additional shares of stock of the Corporation, except:
(a) as part of the transaction which resulted in
that interested stockholder becoming an interested stockholder;
(b) by virtue of proportionate stock splits, stock
dividends or other distributions of stock in respect of stock not constituting a
business combination as defined in Section A.5(5) of this Article;
(c) through a business combination meeting all of
the conditions of paragraph (3) and this paragraph; or
(d) through the purchase by that interested stock-
holder at any price which, if that price had been paid in an otherwise
permissible business combination, the announcement date and consummation date of
which was the date of that purchase, would have satisfied the requirements of
paragraphs (1), (2) and (3) of this subsection.
(6) Exceptions. The provisions of this Article XV shall not
apply to any business combination of the Corporation with an interested
stockholder of the Corporation which became an interested stockholder
inadvertently, if such interested stockholder (i) as soon as practicable divests
itself, himself or herself of a sufficient amount of the voting stock of the
Corporation so that it, he or she no longer is the beneficial owner, directly or
indirectly, of 10% or more of the voting power of the outstanding voting stock
of the Corporation or a subsidiary corporation, and (ii) would not at any time
within the five-year period preceding the announcement date with respect to that
business combination have been an interested stockholder but for that
inadvertent acquisition. Nothing contained in this Article XV shall be construed
to relieve any interested stockholder from any fiduciary obligation imposed by
law.
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Evaluation of Business Combinations. In connection with the exercise of
its judgment in determining what is in the best interests of the Corporation and
of the stockholders, when evaluating a business combination or a tender or
exchange offer, the board of directors of the Corporation shall, in addition to
considering the adequacy of the amount to be paid in connection with any such
transaction, consider all of the following factors and any other factors which
it deems relevant: (i) the social and economic effects of entering into the
transaction on the Corporation and its subsidiaries, and its present and future
employees, depositors, loan and other customers, creditors and other elements of
the communities in which the Corporation and its subsidiaries operate or are
located; (ii) the business and financial condition and earnings prospects of the
acquiring person or entity, including, but not limited to, debt service and
other existing financial obligations, financial obligations to be incurred in
connection with the acquisition, and other likely financial obligations of the
acquiring person or entity, and the possible effect of such conditions upon the
Corporation and its subsidiaries and the other elements of the communities in
which the Corporation and its subsidiaries operate or are located; and (iii) the
competence, experience, and integrity of the acquiring person or entity and its
or their management.
ARTICLE XVI
Elimination of Directors' and Officers' Liability
-------------------------------------------------
Directors and officers of the Corporation shall have no personal
liability to the Corporation or its stockholders for damages for breach of any
duty owed to the Corporation or its stockholders, provided that this Article XVI
shall not relieve a director or officer from liability for any breach of duty
based upon an act or omission (i) in breach of the director's or officer's duty
of loyalty to the Corporation or its stockholders, (ii) not in good faith or
involving a knowing violation of law, or (iii) resulting in receipt by such
person of an improper personal benefit. Any repeal or modification of this
Article XVI by the stockholders of the Corporation shall not adversely affect
any right or protection of a director or officer of the Corporation hereunder or
otherwise with respect to any act or omission occurring before such repeal or
modification is effective. If the New Jersey Business Corporation Act is amended
to further limit the personal liability of directors and officers, then such
liability will be limited to the fullest extent permitted under the law.
ARTICLE XVII
Indemnification
---------------
A. Indemnification. The Corporation shall indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, including actions by or in the right of
the Corporation, whether civil, criminal, administrative, arbitrative or
investigative, by reason of the fact that such person is or was a director,
officer, employee or agent of the Corporation or of any constituent corporation
absorbed by the Corporation in a consolidation or merger, or is or was serving
at the request of the Corporation as a director, officer, employee or agent of
another Corporation, partnership, joint venture, sole proprietorship, trust or
other enterprise, against expenses (including attorneys' fees), judgements,
fines and amounts paid in settlement actually and reasonably incurred by such
person in connection with such action, suit or proceeding to the full extent
permissible under New Jersey law.
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B. Advance Payment. The Corporation may pay in advance any expenses
(including attorneys' fees) which may become subject to indemnification under
Section A of this Article XVII if the person receiving the payment undertakes in
writing to repay the same if it is ultimately determined that he or she is not
entitled to indemnification by the Corporation under New Jersey law.
C. Nonexclusive. The indemnification and advancement of expenses
provided by Sections A and B of this Article XVII or otherwise granted pursuant
to New Jersey law shall not be exclusive of any other rights to which a person
may be entitled by law, bylaw, agreement, vote of stockholders, or disinterested
directors, or otherwise.
D. Continuation. The indemnification and advance payment provided by
Sections A and B shall continue as to a person who has ceased to hold a position
named in paragraph A of this Article XVII and shall inure to his or her heirs,
executors and administrators. In addition, any repeal or modification of this
Article XVII by the stockholders of the Corporation shall not adversely affect
any right or protection of a director or officer of the Corporation hereunder or
otherwise with respect to any act or omission occurring before such repeal or
modification is effective.
E. Insurance. The Corporation may purchase and maintain insurance on
behalf of any person who holds or who has held any position named in Section A
of this Article XVII, against any liability incurred by him or her in any such
position, or arising out of his or her status as such, whether or not the
Corporation would have power to indemnify him or her against such liability
under this Article and New Jersey law.
F. Savings Clause. If this Article XVII or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each director, officer, employee, and
agent of the Corporation as to costs, charges, and expenses (including
attorneys' fees), judgments, fines, and amounts paid in settlement with respect
to any action, suit, or proceeding, whether civil, criminal, administrative,
arbitrative or investigative, including an action by or in the right of the
Corporation to the full extent permitted by any applicable portion of this
Article XVII that shall not have been invalidated and to the full extent
permitted by applicable law.
ARTICLE XVIII
Amendment of Bylaws
-------------------
In furtherance and not in limitation of the powers conferred by
statute, the board of directors of the Corporation is expressly authorized to
make, repeal, alter, amend and rescind the Bylaws of the Corporation by a vote
of two-thirds of the board of directors present at a legal meeting held in
accordance with the provisions of the Bylaws. Notwithstanding any other
provision of this Certificate or the Bylaws of the Corporation (and
notwithstanding the fact that some lesser percentage may be specified by law),
the Bylaws shall not be made, repealed, altered, amended or rescinded by the
stockholders of the Corporation except by the vote of the holders of not less
than 80% of the outstanding shares of the capital stock of the Corporation
entitled to vote generally in the election of directors (considered for this
purpose as one class) cast at a meeting of the stockholders called for that
purpose (provided that notice of such proposed adoption, repeal, alteration,
amendment or rescission is included in the notice of such meeting), or, as set
forth above, by the board of directors.
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ARTICLE XIX
Amendment of Certificate of Incorporation
-----------------------------------------
The Corporation reserves the right to repeal, alter, amend or rescind
any provision contained in this Certificate in the manner now or hereafter
prescribed by law, and all rights conferred on stockholders herein are granted
subject to this reservation. Notwithstanding the foregoing, the provisions set
forth in Articles VIII, X, XI, XII, XIII, XIV, XV, XVI, XVII, XVIII and this
Article XIX of this Certificate may not be repealed, altered, amended or
rescinded in any respect unless such action is approved by the affirmative vote
of the holders of not less than 80% of the outstanding shares of capital stock
of the Corporation entitled to vote generally in the election of directors
(considered for this purpose as a single class) cast at a meeting of the
stockholders called for that purpose (provided that notice of such proposed
adoption, repeal, alteration, amendment or rescission is properly included in
the notice of such meeting).
THE UNDERSIGNED, being the Incorporator hereinbefore named, for the
purpose of forming a corporation pursuant to the New Jersey Business Corporation
Act, does make this Certificate, hereby declaring and certifying that this is my
act and deed and the facts herein stated are true, and accordingly has hereunto
set my hand this the 6th day of May, 1998.
/s/Gary N. Pelehaty
-------------------------------
Gary N. Pelehaty
Incorporator
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EXHIBIT 3.(ii)
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BYLAWS
OF
FARNSWORTH BANCORP, INC.
ARTICLE I - Home Office
The home office of Farnsworth Bancorp, Inc. (the "Corporation") shall
be located at 789 Farnsworth Avenue, in Bordentown, in the County of Burlington,
in the State of New Jersey. The Corporation may also have offices at such other
places within or without the State of New Jersey as the board of directors shall
from time to time determine.
ARTICLE II - Shareholders
Section 1. Place of Meetings. All annual and special meetings of
shareholders shall be held at the home office of the Corporation or at such
other place in the State of New Jersey as the board of directors may determine.
Section 2. Annual Meeting. A meeting of the shareholders of the
Corporation for the election of directors and for the transaction of any other
business of the Corporation shall be held annually at such date and time as the
board of directors may determine.
Section 3. Special Meetings. Notwithstanding any other provision of the
Certificate of Incorporation or these Bylaws of the Corporation, any action
required to be taken or which may be taken at any annual or special meeting of
shareholders of the Corporation may be taken without a meeting, only as provided
in the Certificate of Incorporation.
Section 4. Conduct of Meetings. Annual and special meetings shall
be conducted in accordance with rules and procedures adopted by the board of
directors.
Section 5. Notice of Meetings. Written notice stating the place, day,
and hour of the meeting and the purpose(s) for which the meeting is so called
shall be delivered not fewer than ten nor more than 50 days before the date of
the meeting, either personally or by mail, by or at the direction of the
president, or the secretary, or the directors calling the meeting, to each
shareholder of record entitled to vote at such meeting. If mailed, such notice
shall be deemed to be delivered when deposited in the mail, addressed to the
shareholder at the address as it appears on the stock transfer books or records
of the Corporation as of the record date prescribed in Section 6 of this Article
II with postage prepaid. When any shareholders' meeting, either annual or
special, is adjourned for 30 days or more, notice of the adjourned meeting shall
be given as in the case of an original meeting. It shall not be necessary to
give any notice of the time and place of any meeting adjourned for less than 30
days or of the business to be transacted at the meeting, other than an
announcement at the meeting at which such adjournment is taken.
Section 6. Fixing of Record Date. For the purpose of determining the
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment, or the shareholders entitled to receive payment of any
dividend, or in order to make a determination of shareholders for any other
proper purpose, the board of directors shall fix in advance a date as the record
date for any such determination of shareholders. Such date in any case shall be
not more than 60 days and, in case of a meeting of shareholders, not fewer than
10 days prior to the date on which the particular action, requiring
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such determination of shareholders, is to be taken. When a determination of
shareholders entitled to vote at any meeting of shareholders has been made as
provided in this Section 6 of Article II, such determination shall apply to any
adjournment.
Section 7. Voting Lists. A list of shareholders shall be kept on file
at the home office of the Corporation and shall be subject to inspection by any
shareholder for a proper purpose and upon five days written demand, who has been
a shareholder of record for at least six months preceding his or her demand or,
any person holding, or so authorized in writing by the holders of at least 5% of
the outstanding shares.
Section 8. Quorum. A majority of the outstanding shares of the
Corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of shareholders. If less than a majority of the
outstanding shares is represented at a meeting, a majority of the shares so
represented may adjourn the meeting from time to time, subject to the notice
requirements of Section 5 of this Article II. At such adjourned meeting at which
a quorum shall be present or represented, any business may be transacted which
might have been transacted at the meeting as originally notified. The
shareholders present at a duly organized meeting may continue to transact
business until adjournment, notwithstanding the withdrawal of enough
shareholders to constitute less than a quorum.
Section 9. Proxies. At all meetings of stockholders, a stockholder may
vote by proxy executed by the stockholder in the manner provided by the
Certificate of Incorporation. Proxies solicited on behalf of the management
shall be voted as directed by the stockholder or, in the absence of such
direction, as determined by a majority of the board of directors. No proxy shall
be valid after eleven months from the date of its execution unless otherwise
provided in the proxy.
Section 10. Voting. At each election for directors, every stockholder
entitled to vote at such election shall be entitled to one vote for each share
of stock held by him or her. Directors shall be elected by a plurality of votes
of the shares present in person or represented by proxy at the meeting and
entitled to vote on the election of directors. Unless otherwise provided in the
Certificate of Incorporation, by statute, or by these Bylaws, in matters other
than the election of directors, a majority of the shares present in person or
represented by proxy at a lawful meeting and entitled to vote on the subject
matter, shall be sufficient to pass on a transaction or matter.
Section 11. Voting of Shares in the Name of Two or More Persons. When
ownership of stock stands in the name of two or more persons, in the absence of
written directions to the Corporation to the contrary, at any meeting of the
shareholders of the Corporation, any one or more of such shareholders may cast,
in person or by proxy, all votes to which such ownership is entitled. In the
event an attempt is made to cast conflicting votes, in person or by proxy, by
the several persons in whose names shares of stock stand, the vote or votes to
which those persons are entitled shall be cast as directed by a majority of
those holding such and present in person or by proxy at such meeting, but no
votes shall be cast for such stock if a majority cannot agree.
Section 12. Voting of Shares of Certain Holders. Shares standing in the
name of another corporation may be voted by any officer, agent, or proxy as the
bylaws of such corporation may prescribe, or, in the absence of such provision,
as the board of directors of such corporation may determine. Shares held by an
administrator, executor, guardian, or conservator may be voted by him or her,
either in person or by proxy, without a transfer of such shares into his or her
name. Shares standing in the name of a trustee may be voted by him or her,
either in person or by proxy, but no trustee shall
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be entitled to vote shares held by him or her without a transfer of shares into
his or her name. Shares standing in the name of a receiver may be voted by such
receiver, and shares held by or under the control of a receiver may be voted by
such receiver without the transfer into his or her name if authority to do so is
contained in an appropriate order of the court or other public authority by
which such receiver was appointed.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter, the pledgee shall be entitled to vote the shares so transferred.
Neither treasury shares of its own stock held by the Corporation nor
shares held by another corporation, if a majority of the shares entitled to vote
for the election of directors of such other corporation are held by the
Corporation, shall be voted at any meeting or counted in determining the total
number of outstanding shares at any given time for purposes of any meeting.
Section 13. Inspectors of Election. In advance of any meeting of
shareholders, the board of directors may appoint any persons other than nominees
for office as inspectors of election to act at such meeting or any adjournment.
The number of inspectors shall be either one or three. Any such appointment
shall not be altered at the meeting. If inspectors of election are not so
appointed, the chairman of the board or the president may, or on the request of
not fewer than 10 percent of the votes represented at the meeting shall, make
such appointment at the meeting. If appointed at the meeting, the majority of
the votes present shall determine whether one or three inspectors are to be
appointed. In case any person appointed as inspector fails to appear or fails or
refuses to act, the vacancy may be filled by appointment by the board of
directors in advance of the meeting or at the meeting by the chairman of the
board or the president.
Unless otherwise prescribed by regulation of the board, the duties of
such inspectors shall include: determining the number of shares and the voting
power of each share, the shares represented at the meeting, the existence of a
quorum, and the authenticity, validity and effect of proxies; receiving votes,
ballots, or consents; hearing and determining all challenges and questions in
any way arising in connection with the rights to vote; counting and tabulating
all votes or consents; determining the result; and such acts as may be proper to
conduct the election or vote with fairness to all shareholders.
Section 14. Nominating Committee. The board of directors shall act as a
nominating committee for selecting the management nominees for election as
directors. Except in the case of a nominee substituted as a result of the death
or other incapacity of a management nominee, the nominating committee shall
deliver written nominations to the secretary at least twenty days prior to the
date of the annual meeting. Provided such committee makes such nominations, no
nominations for directors except those made by the nominating committee shall be
voted upon at the annual meeting unless other nominations by stockholders are
made in writing and delivered to the secretary of the Corporation in accordance
with the provisions of Article II, Section 15 of these Bylaws.
Section 15. Notice for Nominations and Proposals. Nominations of
candidates for election as directors at any annual meeting of stockholders may
be made (a) by, or at the direction of, a majority of the board of directors or
(b) by any stockholder entitled to vote at such annual meeting. Only persons
nominated in accordance with the procedures set forth in this Section 15 shall
be eligible for election as directors at an annual meeting. Ballots bearing the
names of all the persons who have been nominated
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for election as directors at an annual meeting in accordance with the procedures
set forth in this Section 15 shall be provided for use at the annual meeting.
Nominations, other than those made by or at the direction of the board
of directors, shall be made pursuant to timely notice in writing to the
Secretary of the Corporation as set forth in this Section 15. To be timely, a
stockholder's notice shall be delivered to, or mailed and received at, the
principal office of the Corporation not less than 60 days prior to the
anniversary date of the immediately preceding annual meeting of stockholders of
the Corporation; provided, however, that with respect to the first scheduled
annual meeting, notice by the stockholder must be so delivered or received no
later than the close of business on the tenth day following the day on which
notice of the date of the scheduled meeting must be delivered or received no
later than the close of business on the fifth day preceding the date of the
meeting. Such stockholder's notice shall set forth (a) as to each person whom
the stockholder proposes to nominate for election or re-election as a director
and as to the stockholder giving the notice (i) the name, age, business address
and residence address of such person, (ii) the principal occupation or
employment of such person, (iii) the class and number of shares of Corporation
stock which are Beneficially Owned (as defined in Article XIV of the Certificate
of Incorporation) by such person on the date of such stockholder notice, and
(iv) any other information relating to such person that is required to be
disclosed in solicitations of proxies with respect to nominees for election as
directors, pursuant to Regulation 14A under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), including, but not limited to, information
required to be disclosed by Items 4, 5, 6 and 7 of Schedule 14A to be filed on
with the Securities and Exchange Commission (or any successors of such items or
schedule); and (b) as to the stockholder giving the notice (i) the name and
address, as they appear on the Corporation's books, of such stockholder and any
other stockholders known by such stockholder to be supporting such nominees and
(ii) the class and number of shares of Corporation stock which are Beneficially
Owned by such stockholder on the date of such stockholder notice and, to the
extent known, by any other stockholders known by such stockholder to be
supporting such nominees on the date of such stockholder notice. At the request
of the board of directors, any person nominated by, or at the direction of, the
Board for election as a director at an annual meeting shall furnish to the
Secretary of the Corporation that information required to be set forth in a
stockholder's notice of nomination which pertains to the nominee.
Proposals, other than those made by or at the direction of the board of
directors, shall be made pursuant to timely notice in writing to the Secretary
of the Corporation as set forth in this Section 15. For stockholder proposals to
be included in the Corporation's proxy materials, the stockholder must comply
with all the timing and informational requirements of Rule 14a-8 of the Exchange
Act (or any successor regulation). With respect to stockholder proposals to be
considered at the annual meeting of stockholders but not included in the
Corporation's proxy materials, the stockholder's notice shall be delivered to,
or mailed and received at, the principal office of the Corporation not less than
60 days prior to the anniversary date of the immediately preceding annual
meeting of stockholders of the Corporation. Such stockholder's notice shall set
forth as to each matter the stockholder proposes to bring before the annual
meeting (a) a brief description of the proposal desired to be brought before the
annual meeting and the reasons for conducting such business at the annual
meeting, (b) the name and address, as they appear on the Corporation's books, of
the stockholder proposing such business and, to the extent known, any other
stockholders known by such stockholder to be supporting such proposal, (c) the
class and number of shares of the Corporation stock which are Beneficially Owned
by the stockholder on the date of such stockholder notice and, to the extent
known, by any other stockholders known by such stockholder to be supporting such
proposal on the date of such stockholder notice, and (d) any financial interest
of the stockholder in such proposal (other than interests which all stockholders
would have).
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The board of directors may reject any nomination by a stockholder or
stockholder proposal not timely or properly made in accordance with the
requirements of this Section 15. If the board of directors, or a designated
committee thereof, determines that the information provided in a stockholder's
notice does not satisfy the informational requirements of this Section 15 in any
material respect, the Secretary of the Corporation shall notify such stockholder
of the deficiency in the notice. The stockholder shall have an opportunity to
cure the deficiency by providing additional information to the Secretary within
such period of time, not to exceed five days from the date such deficiency
notice is given to the stockholder, as the board of directors or such committee
shall reasonably determine. If the deficiency is not cured within such period,
or if the board of directors or such committee reasonably determines that the
additional information provided by the stockholder, together with information
previously provided, does not satisfy the requirements of this Section 15 in any
material respect, then the board of directors may reject such stockholder's
nomination or proposal. The Secretary of the Corporation shall notify a
stockholder in writing whether his or her nomination or proposal has been made
in accordance with the time and informational requirements of this Section 15.
Notwithstanding the procedures set forth in this paragraph, if neither the board
of directors nor such committee makes a determination as to the validity of any
nominations or proposals by a stockholder, the presiding officer of the annual
meeting shall determine and declare at the annual meeting whether the nomination
or proposal was made in accordance with the terms of this Section 15. If the
presiding officer determines that a nomination or proposal was made in
accordance with the terms of this Section 15, he shall so declare at the annual
meeting and ballots shall be provided for use at the meeting with respect to
such nominee or proposal. If the presiding officer determines that a nomination
or proposal was not made in accordance with the terms of this Section 15, he
shall so declare at the annual meeting and the defective nomination or proposal
shall be disregarded.
ARTICLE III - Board of Directors
Section 1. General Powers. The business and affairs of the Corporation
shall be under the direction of its board of directors. The board of directors
may annually elect a chairman of the board and one or more vice chairmen from
among its members and shall designate, when present, either the chairman of the
board or in his or her absence, one of the vice chairmen to preside at its
meetings.
Section 2. Number, Term and Election. The board of directors shall
initially consist of seven members and shall be divided into three classes as
nearly equal in number as possible. The members of each class shall be elected
for a term of three years and until their successors are elected or qualified.
The board of directors shall be classified in accordance with the provisions of
the Corporation's Certificate of Incorporation. Directors are to be elected by a
plurality of votes cast by the shares entitled to vote in the election at a
meeting of stockholders at which a quorum is present. The board of directors may
increase the number of members of the board of directors but in no event shall
the number of directors be increased in excess of fifteen (15) persons.
Section 3. Place of Meeting. All annual and special meetings of the
board of directors shall be held at the principal office of the Corporation or
at such other place within or outside the State in which the principal office of
the Corporation is located as the board of directors may determine and as
designated in the notice of such meeting.
Section 4. Regular Meetings. A regular meeting of the board of
directors shall be held without other notice than this Bylaw at such time and
date as the board of directors may determine.
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Section 5. Special Meetings. Special meetings of the board of directors
may be called by or at the request of the chairman of the board, the president,
or one-third of the directors. The persons authorized to call special meetings
of the board of directors may fix any place, within or outside the State of New
Jersey, as the place for holding any special meeting of the board of directors
called by such persons.
Members of the board of directors may participate in special meetings
by means of conference telephone or similar communications equipment by which
all persons participating in the meeting can hear each other. Such participation
shall constitute presence in person.
Section 6. Notice of Special Meeting. Written notice of at least 24
hours regarding any special meeting of the board of directors or of any
committee designated thereby shall be given to each director in accordance with
these Bylaws, although such notice may be waived by the director. The attendance
of such director at a meeting shall constitute a waiver of notice of such
meeting, except where a director attends a meeting for the express purpose of
objecting to the transaction of any business because the meeting is not lawfully
called or convened. Neither the business to be transacted at, nor the purpose
of, any meeting need be specified in the notice of waiver of notice of such
meeting.
Section 7. Quorum. A majority of the number of directors fixed by
Section 2 of this Article III shall constitute a quorum for the transaction of
business at any meeting of the board of directors, but if less than such
majority is present at a meeting, a majority of the directors present may
adjourn the meeting from time to time. Notice of any adjourned meeting shall be
given in the same manner as prescribed by Section 6 of this Article III.
Section 8. Manner of Acting. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the board
of directors, unless a greater number is prescribed by these Bylaws, the
Certificate of Incorporation or the laws of New Jersey.
Section 9. Action Without a Meeting. Any action required or permitted
to be taken by the board of directors at a meeting may be taken without a
meeting if a consent in writing, setting forth the action so taken, shall be
signed by all of the directors.
Section 10. Resignation. Any director may resign at any time by sending
a written notice of such resignation to the home office of the Corporation
addressed to the chairman of the board or the president. Unless otherwise
specified, such resignation shall take effect upon receipt by the chairman of
the board or the president.
Section 11. Vacancies. Any vacancy occurring on the board of directors
may be filled by the affirmative vote of a majority of the remaining directors,
although less than a quorum of the board of directors. A director elected to
fill a vacancy shall be elected to serve until the next election of directors by
the shareholders. Any directorship to be filled by reason of an increase in the
number of directors may be filled by election by the board of directors for a
term of office continuing only until the next election of directors by the
shareholders.
Section 12. Compensation. Directors, as such, may receive a stated
salary for their services. By resolution of the board of directors, a reasonable
fixed sum, and reasonable expenses of attendance, if any, may be allowed for
actual attendance at each regular or special meeting of the board of directors.
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Members of either standing or special committees may be allowed such
compensation as the board of directors may determine.
Section 13. Presumption of Assent. A director of the Corporation who is
present at a meeting of the board of directors at which action on any
Corporation matter is taken shall be presumed to have assented to the action
taken unless his dissent or abstention shall be entered in the minutes of the
meeting or unless he or she shall file a written dissent to such action with the
person acting as the secretary of the meeting before the adjournment thereof or
shall forward such dissent by registered mail to the secretary of the
Corporation within five days after the date a copy of the minutes of the meeting
is received. Such right to dissent shall not apply to a director who voted in
favor of such action.
Section 14. Removal of Directors. Directors of the Corporation may
be removed only in accordance with the Corporation's Certificate of
Incorporation.
ARTICLE IV - Executive And Other Committees
Section 1. Appointment. The board of directors, by resolution adopted
by a majority of the full board, may designate the chief executive officer and
two or more of the other directors to constitute an executive committee. The
designation of any committee pursuant to this Article IV and the delegation of
authority shall not operate to relieve the board of directors, or any director,
of any responsibility imposed by law or regulation.
Section 2. Authority. The executive committee, when the board of
directors is not in session, shall have and may exercise all of the authority of
the board of directors except to the extent, if any, that such authority shall
be limited by the resolution appointing the executive committee; and except also
that the executive committee shall not have the authority of the board of
directors with reference to: the declaration of dividends; the amendment of the
Certificate of Incorporation or these Bylaws of the Corporation, or recommending
to the shareholders a plan of merger, consolidation, or conversion; the sale,
lease, or other disposition of all or substantially all of the property and
assets of the Corporation otherwise than in the usual and regular course of its
business; a voluntary dissolution of the Corporation; a revocation of any of the
foregoing; or the approval of a transaction in which any member of the executive
committee, directly or indirectly, has any material beneficial interest.
Section 3. Tenure. Subject to the provisions of Section 8 of this
Article IV, each member of the executive committee shall hold office until the
next regular annual meeting of the board of directors following his or her
designation and until a successor is designated as a member of the executive
committee.
Section 4. Meetings. Regular meetings of the executive committee may be
held without notice at such times and places as the executive committee may fix
from time to time by resolution. Special meetings of the executive committee may
be called by any member thereof upon not less than one day's notice stating the
place, date and hour of the meeting. Any member of the executive committee may
waive notice of any meeting and no notice of any meeting need be given to any
member thereof who attends in person. The notice of a meeting of the executive
committee need not state the business proposed to be transacted at the meeting.
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Section 5. Quorum. A majority of the members of the executive committee
shall constitute a quorum for the transaction of business at any meeting
thereof, and action of the executive committee must be authorized by the
affirmative vote of a majority of the members present at a meeting at which a
quorum is present.
Section 6. Action Without a Meeting. Any action required or permitted
to be taken by the executive committee at a meeting may be taken without a
meeting if a consent in writing, setting forth the action so taken, shall be
signed by all of the members of the executive committee.
Section 7. Vacancies. Any vacancy in the executive committee may
be filled by a resolution adopted by a majority of the full board of directors.
Section 8. Resignations and Removal. Any member of the executive
committee may be removed at any time with or without cause by resolution adopted
by a majority of the full board of directors. Any member of the executive
committee may resign from the executive committee at any time by giving written
notice to the president or secretary of the Corporation. Unless otherwise
specified, such resignation shall take effect upon its receipt; the acceptance
of such resignation shall not be necessary to make it effective.
Section 9. Procedure. The executive committee shall elect a presiding
officer from its members and may fix its own rules of procedure which shall not
be inconsistent with these Bylaws. It shall keep regular minutes of its
proceedings and report the same to the board of directors for its information at
the meeting held next after the proceedings shall have occurred.
Section 10. Other Committees. The board of directors may by resolution
establish any other committee composed of directors as they may determine to be
necessary or appropriate for the conduct of the business of the Corporation and
may prescribe the duties, constitution, and procedures thereof.
ARTICLE V - Officers
Section 1. Positions. The officers of the Corporation shall include a
chief executive officer, president, one or more vice presidents, a secretary and
a treasurer, each of whom shall be elected by the board of directors. The
offices of the secretary and treasurer may be held by the same person and a vice
president may also be either the secretary or the treasurer. The board of
directors may designate one or more vice presidents as executive vice president
or senior vice president. The board of directors may also elect or authorize the
appointment of such other officers as the business of the Corporation may
require. The officers shall have such authority and perform such duties as the
board of directors may from time to time authorize or determine. In the absence
of action by the board of directors, the officers shall have such powers and
duties as generally pertain to their respective offices.
Section 2. Election and Term of Office. The officers of the Corporation
shall be elected annually at the first meeting of the board of directors held
after each annual meeting of the shareholders. If the election of officers is
not held at such meeting, such election shall be held as soon thereafter as
possible. Each officer shall hold office until a successor has been duly elected
and qualified or until the officer's death, resignation, or removal in the
manner hereinafter provided. Election or appointment of an officer, employee, or
agent shall not of itself create contractual rights. The board of directors may
authorize the Corporation to enter into an employment contract with any officer,
but no such contract
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<PAGE>
shall impair the right of the board of directors to remove any officer at any
time in accordance with Section 3 of this Article V.
Section 3. Removal. Any officer may be removed by the board of
directors whenever in its judgment the best interests of the Corporation will be
served thereby, but such removal, other than for cause, shall be without
prejudice to any contractual rights of the person so removed.
Section 4. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification, or otherwise may be filled by the board
of directors for the unexpired portion of the term.
Section 5. Remuneration. The remuneration of the officers shall
be fixed from time to time by the board of directors, by employment contracts or
otherwise.
ARTICLE VI - Contracts, Loans, Checks, and Deposits
Section 1. Contracts. Except as otherwise prescribed by these Bylaws
with respect to certificates for shares, the board of directors may authorize
any officer, employee, or agent of the Corporation to enter into any contract or
execute and deliver any instrument in the name of and on behalf of the
Corporation. Such authority may be general or confined to specific instances.
Section 2. Loans. No loans shall be contracted on behalf of the
Corporation and no evidence of indebtedness shall be issued in its name unless
authorized by the board of directors. Such authority may be general or confined
to specific instances.
Section 3. Checks, Drafts, Etc. All checks, drafts, or other orders for
the payment of money, notes, or other evidences of indebtedness issued in the
name of the Corporation shall be signed by one or more officers, employees, or
agents of the Corporation, which may include facsimile signatures, in such
manner as shall from time to time be determined by the board of directors.
Section 4. Deposits. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
in any duly authorized depositories as the board of directors may select.
ARTICLE VII - Certificates for Shares and Their Transfer
Section 1. Certificates for Shares. Certificates representing shares of
capital stock of the Corporation shall be in such form as shall be determined by
the board of directors. Such certificates shall be signed by the chief executive
officer or by any other officer of the Corporation authorized by the board of
directors, attested by the secretary or an assistant secretary, and sealed with
the corporate seal or a facsimile thereof. The signatures of such officers upon
a certificate may be facsimiles if the certificate is manually signed on behalf
of a transfer agent or a registrar other than the Corporation itself or one of
its employees. Each certificate for shares of capital stock shall be
consecutively numbered or otherwise identified. The name and address of the
person to whom the shares are issued, with the number of shares and date of
issue, shall be entered on the stock transfer books of the Corporation. All
certificates surrendered to the Corporation for transfer shall be canceled and
no new certificate shall be
-9-
<PAGE>
issued until the former certificate for a like number of shares has been
surrendered and canceled, except that in the case of a lost or destroyed
certificate, a new certificate may be issued upon such terms and indemnity to
the Corporation as the board of directors may prescribe.
Section 2. Transfer of Shares. Transfer of shares of capital stock of
the Corporation shall be made only on its stock transfer books. Authority for
such transfer shall be given only by the holder of record or by his or her legal
representative, who shall furnish proper evidence of such authority, or by his
or her attorney authorized by a duly executed power of attorney and filed with
the Corporation. Such transfer shall be made only on surrender for cancellation
of the certificate for such shares. The person in whose name shares of capital
stock stand on the books of the Corporation shall be deemed by the Corporation
to be the owner for all purposes.
Section 3. Payment for Shares. No certificate shall be issued for
any shares until such share is fully paid.
Section 4. Form of Payment for Shares. The consideration for the
issuance of shares shall be paid in accordance with the provisions of New Jersey
law.
Section 5. Stock Ledger. The stock ledger of the Corporation shall be
the only evidence as to who are the stockholders entitled to examine the stock
ledger, the list required by Section 7 of Article II of these Bylaws or the
books of the Corporation, or to vote in person or by proxy at any meeting of
stockholders.
Section 6. Lost Certificates. The board of directors may direct a new
certificate to be issued in place of any certificate theretofore issued by the
Corporation alleged to have been lost, stolen, or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen, or destroyed. When authorizing such issue of a new certificate,
the board of directors may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost, stolen, or destroyed
certificate, or his or her legal representative, to give the Corporation a bond
in such sum as it may direct as indemnity against any claim that may be made
against the Corporation with respect to the certificate alleged to have been
lost, stolen, or destroyed.
Section 7. Beneficial Owners. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and shall not be
bound to recognize any equitable or other claim to or interest in such shares on
the part of any other person, whether or not the Corporation shall have express
or other notice thereof, except as otherwise provided by law.
ARTICLE VIII - Fiscal Year; Annual Audit
The fiscal year of the Corporation shall end on the last day of
September of each year. The Corporation shall be subject to an annual audit as
of the end of its fiscal year by independent public accountants appointed by and
responsible to the board of directors.
-10-
<PAGE>
ARTICLE IX - Dividends
Subject only to the terms of the Corporation's Certificate of
Incorporation and applicable law, the board of directors may, from time to time,
declare and the Corporation may pay, dividends on its outstanding classes of
capital stock which are eligible for dividends.
ARTICLE X - Corporate Seal
The board of directors shall provide a Corporate seal which shall be
two concentric circles between which shall be the name of the Corporation. The
year of incorporation or an emblem may appear in the center.
ARTICLE XI - Amendments
These Bylaws may be amended only as specified in the Corporation's
Certificate of Incorporation.
-11-
EXHIBIT 5
<PAGE>
MALIZIA, SPIDI, SLOANE & FISCH, P.C.
ATTORNEYS AT LAW
1301 K STREET, N.W.
SUITE 700 EAST
WASHINGTON, D.C. 20005
(202) 434-4660
FACSIMILE: (202) 434-4661
WRITER'S DIRECT DIAL NUMBER
June 12, 1998
Board of Directors
Peoples Savings Bank
789 Farnsworth Avenue
Bordentown, New Jersey 08505
Re: Registration Statement Under the Securities Act of 1933
-------------------------------------------------------
Ladies and Gentlemen:
This opinion is rendered in connection with the Registration Statement
on Form SB-2 to be filed with the Securities and Exchange Commission under the
Securities Act of 1933 relating to the offer and sale of up to 548,838 shares of
common stock, par value $0.10 per share (the "Common Stock"), of Farnsworth
Bancorp, Inc. (the "Company"), including shares to be issued to certain employee
benefit plans of the Company and its subsidiary. The Common Stock is proposed to
be issued pursuant to the Plan of Conversion (the "Plan") of Peoples Savings
Bank (the "Bank") in connection with the Bank's conversion from the mutual to
the stock form of organization and reorganization into a wholly-owned subsidiary
of the Company (the "Conversion"). As special counsel to the Bank and the
Company, we have reviewed the corporate proceedings relating to the Plan and the
Conversion and such other legal matters as we have deemed appropriate for the
purpose of rendering this opinion.
Based on the foregoing, we are of the opinion that the shares of Common
Stock of the Company covered by the aforesaid Registration Statement will, when
issued in accordance with the terms of the Plan against full payment therefor,
be validly issued, fully paid, and non-assessable shares of Common Stock of the
Company.
We assume no obligation to advise you of changes that may hereafter be
brought to our attention.
<PAGE>
Board of Directors
June 12, 1998
Page Two
We hereby consent to the use of this opinion and to the reference to
our firm appearing in the Company's Prospectus under the headings "The
Conversion - Effects of Conversion to Stock Form on Depositors and Borrowers of
Peoples Savings Bank--Tax Effects" and "Legal and Tax Matters." We also consent
to any references to our legal opinion referred to under the aforementioned
headings in the Prospectus.
Very truly yours,
/s/Malizia, Spidi, Sloane & Fisch, P.C.
---------------------------------------
MALIZIA, SPIDI, SLOANE & FISCH, P.C.
EXHIBIT 8.1
<PAGE>
[FORM OF FEDERAL TAX OPINION]
__________ ____, 1998
Board of Directors
Peoples Savings Bank
789 Farnsworth Avenue
Bordentown, New Jersey 08505
Re: Federal Income Tax Opinion Relating to the Proposed Conversion of Peoples
Savings Bank from a Federally-Chartered Mutual Savings Bank to a
Federally-Chartered Stock Savings Bank Pursuant to Section 368(a)(1)(F) of
the Internal Revenue Code of 1986, as amended
---------------------------------------------------------------------------
Members of the Board:
In accordance with your request, set forth hereinbelow is the opinion
of this firm relating to material federal income tax consequences of the
proposed conversion (the "Conversion") of Peoples Savings Bank (the "Bank") from
a federally-chartered mutual savings bank to a federally-chartered capital stock
savings bank (the "Stock Bank"), and formation of a parent holding company (the
"Holding Company") which will simultaneously acquire all of the outstanding
stock of Stock Bank. As proposed, the Conversion will be implemented pursuant to
Section 368(a)(1)(F) of the Internal Revenue Code of 1986, as amended (the
"Code").
We have examined such corporate records, certificates and other
documents as we have considered necessary or appropriate for this opinion. In
such examination, we have accepted, and have not independently verified, the
authenticity of all original documents, the accuracy of all copies, and the
genuineness of all signatures. Further, the capitalized terms which are used in
this opinion and are not expressly defined herein shall have the meaning
ascribed to them in the Bank's Plan of Conversion adopted on March 2, 1998 (the
"Plan of Conversion").
STATEMENT OF FACTS
------------------
Based solely upon our review of such documents, and upon such
information as the Bank has provided to us (which we have not attempted to
verify in any respect), and in reliance upon such documents and information, we
understand the relevant facts with respect to the Conversion to be as follows:
<PAGE>
Board of Directors
Peoples Savings Bank
___________ ___, 1998
Page 2
The Bank is a federally-chartered mutual savings bank. As a mutual
savings bank, the Bank has no authorized capital stock. Instead, the Bank, in
mutual form, has a unique equity structure. A savings depositor of the Bank is
entitled to interest income on his or her account balance as declared and paid
by the Bank. A savings depositor has no right to a distribution of any earnings
of the Bank, but rather these amounts become retained earnings of the Bank.
However, a savings depositor has a right to share pro rata, with respect to the
withdrawal value of his or her respective savings account, in any liquidation
proceeds distributed in the event the Bank is ever liquidated. Voting rights in
the Bank are held by its members. Each member is entitled to cast one vote for
each $100 or a fraction thereof of the withdrawal value of the member's account
and each borrower member is entitled to one vote. Each member shall have a
maximum of 1,000 votes. All of the interests held by a savings depositor in the
Bank cease when such depositor closes his or her account(s) with the Bank.
The Board of Directors of the Bank has decided that in order to promote
the growth and expansion of the Bank through the raising of additional capital,
it would be advantageous for the Bank to: (i) convert from a federally-chartered
mutual savings bank to a federally-chartered capital stock savings bank, and
(ii) arrange for the Holding Company to simultaneously acquire all of the Stock
Bank's stock. The Bank's Board of Directors has determined that in order to
provide greater flexibility in future operations of the Bank, including
diversification of business opportunities and acquisition, it is advantageous to
have the Stock Bank's stock held by the Holding Company. Pursuant to the Plan of
Conversion, the Bank's certificate of incorporation to operate as a mutual
savings bank will be amended and a new certificate of incorporation will be
acquired to allow it to continue its operations in the form of a
federally-chartered capital stock savings bank. The Plan of Conversion provides
for the conversion of the Bank from mutual-to-stock form, and an appraisal of
the pro forma market value of the stock of the Stock Bank, which will be owned
solely by the Holding Company. The Plan of Conversion must be approved by the
Office of Thrift Supervision ("OTS"), and by an affirmative vote of at least a
majority of the total votes eligible to be cast at a special meeting of the
Bank's members called to vote on the Plan of Conversion.
The Holding Company is being formed under the laws of the State of New
Jersey for the purpose of the proposed transaction described herein, to engage
in business as a savings and loan holding company and to hold all of the stock
of the Stock Bank. The Holding Company will issue shares of its voting common
stock ("Holding Company Stock") upon completion of the Conversion, as described
below, to persons purchasing such shares through a Subscription Offering and to
the general public in a Public Offering.
Following appropriate regulatory approval, the Plan of Conversion
provides for the issuance of shares of Holding Company Stock to eligible
depositors and borrowers of the Bank and others as described below and set forth
in the Plan of Conversion. The aggregate purchase price at which all shares of
Holding Company Stock will be offered and sold pursuant to the
<PAGE>
Board of Directors
Peoples Savings Bank
___________ ___, 1998
Page 3
Plan of Conversion will be equal to the estimated pro forma market value of the
Bank at the time of the Conversion as held as a subsidiary of the Holding
Company. The estimated pro forma market value will be determined by an
independent appraiser. Pursuant to the Plan of Conversion, all such shares of
Holding Company Stock will be issued and sold at a uniform price per share. The
Conversion and the sale of newly issued shares of the Stock Bank's stock to the
Holding Company will be deemed effective concurrently with the closing of the
sale of Holding Company Stock.
As required by OTS regulations, shares of Holding Company Stock will be
offered pursuant to non-transferable subscription rights on the basis of
preference categories. All shares must be sold and to the extent that Holding
Company Stock is available, no subscriber will be allowed to purchase less than
25 shares of Holding Company Stock, provided that the aggregate purchase price
does not exceed $500. The Bank has established various preference categories
under which shares of Holding Company Stock may be purchased and a public
offering category for the sale of shares not purchased under the preference
categories. If the third preference category is determined to be inappropriate
to the Conversion, then there will only be three preference categories
consisting of the first, second, and fourth preference categories set forth
below, and all references herein to Supplemental Eligible Account Holder and the
Supplemental Eligibility Record Date shall not be applicable to the subject
transaction.
The first preference category is reserved for the Bank's Eligible
Account Holders. The Plan of Conversion defines "Eligible Account Holder" as any
person holding a Qualifying Deposit. The Plan of Conversion defines "Qualifying
Deposit" as the aggregate balance of all savings accounts of an Eligible Account
Holder in the Bank at the close of business on December 31, 1996, which is at
least equal to $50.00. If a savings account holder of the Bank qualifies as an
Eligible Account Holder, he or she will receive, without payment,
non-transferable subscription rights to purchase Holding Company Stock. The
number of shares that each Eligible Account Holder may subscribe to is equal to
the greater of (a) the maximum purchase limitation established for the Public
Offering; (b) one tenth of one percent of the total offering of shares; or (c)
fifteen times the product (rounded down to the next whole number) obtained by
multiplying the total number of shares of Holding Company Stock to be issued by
a fraction of which the numerator is the amount of the Qualifying Deposit of the
Eligible Account Holder and the denominator is the total amount of the
Qualifying Deposits of all Eligible Account Holders. If there is an
oversubscription, shares will be allocated among subscribing Eligible Account
Holders so as to permit each account holder, to the extent possible, to purchase
a number of shares sufficient to make his or her total allocation equal to 100
shares. Any shares not then allocated shall be allocated among the subscribing
Eligible Account Holders on an equitable basis, related to the amounts of their
respective deposits as compared to the total deposits of Eligible Account
Holders on the Eligibility Record Date. Non-transferable subscription rights to
purchase Holding Company Stock received by officers and directors of the Bank
and their associates based on their increased deposits in the Bank in the one
year period
<PAGE>
Board of Directors
Peoples Savings Bank
___________ ___, 1998
Page 4
preceding the Eligibility Record Date shall be subordinated to all other
subscriptions involving the exercise of nontransferable subscription rights to
purchase shares of Holding Company Stock under the first preference category.
The second preference category is reserved for tax-qualified employee
stock benefit plans of the Stock Bank. The Plan of Conversion defines "tax
qualified employee stock benefit plans" as any defined benefit plan or defined
contribution plan, such as an employee stock ownership plan, stock bonus plan,
profit-sharing plan or other plan, which, with its related trust meets the
requirements to be "qualified" under Section 401 of the Code. Under the Plan of
Conversion, the Stock Bank's tax-qualified employee stock benefit plans may
subscribe for up to 10% of the shares of Holding Company Stock to be offered in
the Conversion.
The third preference category is reserved for the Bank's Supplemental
Eligible Account Holders. The Plan of Conversion defines "Supplemental Eligible
Account Holder" as any person (other than officers or directors of the Bank and
their associates) holding a deposit in the Bank on the last day of the calendar
quarter preceding the approval of the Plan of Conversion by the OTS
("Supplemental Eligibility Record Date"). This third preference category will
only be used in the event that the Eligibility Record Date is more than 15
months prior to the date of the latest amendment to the Application for Approval
of Conversion on Form AC filed prior to approval by the OTS. The third
preference category provides that each Supplemental Eligible Account Holder will
receive, without payment, nontransferable subscription rights to purchase
Holding Company Stock to the extent that such shares of Holding Company Stock
are available after satisfying subscriptions for shares in the first and second
preference categories above. The number of shares to which a Supplemental
Eligible Account Holder may subscribe to is the greater of (a) the maximum
purchase limitation established for the Community Offering; (b) one-tenth of one
percent of the total offering of shares; or (c) fifteen times the product
(rounded down to the next whole number) obtained by multiplying the total number
of the shares of Holding Company Stock to be issued by a fraction of which the
numerator is the amount of the deposit of the Supplemental Eligible Account
Holder and the denominator is the total amount of the deposits of all
Supplemental Eligible Account Holders on the Supplemental Eligibility Record
Date. Subscription rights received pursuant to the third preference category
shall be subordinated to all rights under the first and second preference
categories. Non-transferable subscription rights to be received by a
Supplemental Eligible Account Holder in the third preference category shall be
reduced by the subscription rights received by such account holder as an
Eligible Account Holder under the first and second preference categories. In the
event of an oversubscription, shares will be allocated so as to enable each
Supplemental Eligible Account Holder, to the extent possible, to purchase a
number of shares sufficient to make his total allocation, including shares
previously allocated in the first and second preference categories, equal to 100
shares or the total amount of his subscription, whichever is less. Any shares
not then allocated shall be allocated among the subscribing Supplemental
Eligible Account Holders
<PAGE>
Board of Directors
Peoples Savings Bank
___________ ___, 1998
Page 5
on an equitable basis related to the amount of their respective deposits as
compared to the total deposits of Supplemental Eligible Account Holders on the
Supplemental Eligibility Record Date.
If there is no oversubscription of the Holding Company Stock in the
first, second, and third preference categories, the fourth preference category
becomes operable. In the fourth preference category, members of the Bank
entitled to vote at the special meeting of members to approve the Plan of
Conversion who are not Eligible Account Holders or Supplemental Eligible Account
Holders ("Other Members") will receive, without payment, non-transferable
subscription rights entitling them to purchase Holding Company Stock. Other
Members shall each receive subscription rights to purchase up to the maximum
purchase limitation established for the Public Offering or one-tenth of one
percent of the total offering of shares, to the extent that Holding Company
Stock is available. In the event of an oversubscription by Other Members,
Holding Company Stock will be allocated pro rata according to the number of
shares subscribed for by each Other Member.
The Plan of Conversion further provides for limitations upon purchases
of Holding Company Stock. Specifically, any person by himself or herself or with
an associate or a group of persons acting in concert may subscribe for not more
than $60,000 of Holding Company Stock offered pursuant to the Plan of
Conversion, except that Tax-Qualified Employee Stock Benefit Plans may purchase
up to 10% of the total shares of Holding Company Stock issued. Subject to any
required regulatory approval and the requirements of applicable laws and
regulations, the Bank may increase or decrease any of the purchase limitations
set forth herein at any time. The Board of Directors of the Bank may, in its
sole discretion, increase the maximum purchase limitation up to 5.0%. Requests
to purchase additional shares of Holding Company Stock under this provision will
be allocated by the Board of Directors on a pro rata basis giving priority in
accordance with the priority rights set forth in the Plan of Conversion.
Officers and directors of the Bank and their associates may not purchase in the
aggregate more than 35% of the Holding Company Stock issued pursuant to the
Conversion. Directors of the Bank will not be deemed associates or a group
acting in concert solely as a result of their membership on the board of
directors of the Bank. All of the shares of Holding Company Stock purchased by
officers and directors will be subject to certain restrictions on sale for a
period of one year.
The Plan of Conversion provides that no person will be issued any
subscription rights or be permitted to purchase any Holding Company Stock if
such person resides in a foreign country or in a state of the United States with
respect to which all of the following apply: (a) a small number of persons
otherwise eligible to subscribe for shares under the Plan of Conversion reside
in such state; (b) the issuance of subscription rights or the offer or sale of
the Holding Company Stock in such state, would require the Bank or the Holding
Company under the securities law of such state to register as a broker or dealer
or to register or otherwise qualify its securities for
<PAGE>
Board of Directors
Peoples Savings Bank
___________ ___, 1998
Page 6
sale in such state; and (c) such registration or qualification would be
impracticable for reasons of cost or otherwise.
The Plan of Conversion also provides for the establishment of a
Liquidation Account by Stock Bank for the benefit of all Eligible Account
Holders and Supplemental Eligible Account Holders (if applicable). The
Liquidation Account will be equal in amount to the net worth of Bank as of the
time of the Conversion. The establishment of the Liquidation Account will not
operate to restrict the use or application of any of the net worth accounts of
the Stock Bank, except that the Stock Bank will not declare or pay cash
dividends on or repurchase any of its stock if the result thereof would be to
reduce its net worth below the amount required to maintain the Liquidation
Account. The Liquidation Account will be for the benefit of the Bank's Eligible
Account Holders and Supplemental Eligible Account Holders who maintain accounts
in the Bank at the time of the Conversion. All such account holders, including
those not entitled to subscription rights for reasons of foreign or out-of-state
residency (as described above), will have an interest in the Liquidation
Account. The interest an Eligible Account Holder and Supplemental Eligible
Account Holder will have a right to receive, in the event of a complete
liquidation of the Stock Bank, is a distribution from the Liquidation Account in
the amount of the then current adjusted subaccount balances for savings accounts
then held, which will be made prior to any liquidation distribution with respect
to the capital stock of the Stock Bank.
The initial subaccount balance for a savings account held by an
Eligible Account Holder and/or Supplemental Eligible Account Holder shall be
determined by multiplying the opening balance in the Liquidation Account by a
fraction of which the numerator is the amount of the qualifying deposit in the
savings account, and the denominator is the total amount of qualifying deposits
of all Eligible Account Holders and Supplemental Eligible Account Holders in the
Stock Bank. The initial subaccount balance will never be increased, but may be
decreased if the deposit balance in any qualifying savings account of any
Eligible Account Holder or any savings account of any Supplemental Eligible
Account Holder on any annual closing date subsequent to the Eligibility Record
Date or Supplemental Eligibility Record Date, whichever is applicable, is less
than the lesser of (1) the deposit balance in the savings account at the close
of business on any other annual closing date subsequent to the Eligibility
Record Date or the Supplemental Eligibility Record Date, or (2) the amount of
the qualifying deposit in such savings account. In such event, the subaccount
balance for the savings account will be adjusted by reducing each subaccount
balance in an amount proportionate to the reduction in the savings account
balance. Once decreased, the Plan of Conversion provides that the subaccount
balance will never be subsequently increased, and if the savings account of an
Eligible Account Holder or Supplemental Eligible Account Holder is closed, the
related subaccount balance in the Liquidation Account will be reduced to zero.
The net proceeds from the sale of the shares of Holding Company Stock
will become the permanent capital of Holding Company, and the Holding Company
will in turn purchase 100%
<PAGE>
Board of Directors
Peoples Savings Bank
___________ ___, 1998
Page 7
of the stock issued by Stock Bank, in exchange for up to 50% of the Holding
Company's stock offering net proceeds or such other percentage as is approved by
the Board of Directors with the concurrence of the OTS.
Following the Conversion, voting rights in Stock Bank will rest
exclusively in the Holding Company. Voting rights in the Holding Company will
rest exclusively in the stockholders of the Holding Company. The Conversion will
not interrupt the business of the Bank, and its business will continue as usual
under the Stock Bank. Each depositor will retain a withdrawable savings account
or accounts equal in amount to the withdrawable account or accounts at the time
of the Conversion. Mortgage loans of the Bank will remain unchanged and retain
their same characteristics in the Stock Bank after the Conversion. The Stock
Bank will continue membership in the Federal Home Loan Bank System, and will
remain subject to the regulatory authority of the OTS. Deposits in Stock Bank
will continue to be insured by the Savings Bank Insurance Fund administered by
the Federal Deposit Insurance Corporation up to applicable limits of insurance
coverage.
Immediately prior to the Conversion, the Bank will have a positive net
worth in accordance with generally accepted accounting principles. The savings
account holders of the Bank will pay expenses of the Conversion solely
attributable to them, if any. Further, the Bank will pay its own expenses of the
Conversion and will not pay any expenses solely attributable to the Bank's
savings account holders or to the purchasers of Holding Company Stock.
REPRESENTATIONS BY MANAGEMENT
-----------------------------
In connection with the Conversion, the following statements,
representations and declarations have been made to us by management of the Bank:
1. The Conversion will be implemented in accordance with the terms of
the Plan of Conversion and all conditions precedent contained in the Plan of
Conversion shall be performed prior to the consummation of the Conversion.
2. The fair market value of the withdrawable savings accounts plus
interests in the Liquidation Account to be constructively received under the
Plan of Conversion will in each instance be equal to the fair market value of
each savings account of the Bank plus the interest in the residual equity of the
Bank surrendered in exchange therefor. All proprietary rights in the Bank form
an integral part of the withdrawable savings accounts being surrendered in the
Conversion.
3. The Holding Company and the Stock Bank each have no plan or
intention to redeem or otherwise acquire any of the Holding Company Stock issued
in the proposed transaction.
<PAGE>
Board of Directors
Peoples Savings Bank
___________ ___, 1998
Page 8
4. To the best of the knowledge of the management of the Bank, there is
not now nor will there be at the time of the Conversion, any plan or intention,
on the part of the depositors in the Bank to withdraw their deposits following
the Conversion. Deposits withdrawn immediately prior to or immediately
subsequent to the Conversion (other than maturing deposits) are considered in
making these assumptions.
5. Immediately following the consummation of the proposed transaction,
the Stock Bank will possess the same assets and liabilities as the Bank held
immediately prior to the proposed transaction, plus substantially all of the net
proceeds from the sale of its stock to the Holding Company (except for assets
used to pay expenses in the Conversion). Assets used to pay expenses of the
Conversion (without reference to the expenses of the Subscription Offering and
the Public Offering) and all distributions (except for regular normal interest
payments made by the Bank immediately preceding the transaction) will in the
aggregate constitute less than one percent (1%) of the assets of the Bank, net
of liabilities associated with such assets, and will be paid by the Bank and the
Holding Company from the proceeds of the Subscription Offering and Public
Offering.
6. Following the Conversion, Stock Bank will continue to engage in its
business in substantially the same manner as engaged in by the Bank prior to the
Conversion. The Stock Bank has no plan or intention to sell or otherwise dispose
of any of its assets, except in the ordinary course of business.
7. No cash or property will be given to any member of the Bank in lieu
of subscription rights or an interest in the Liquidation Account of the Stock
Bank.
8. None of the compensation to be received by any deposit account
holder-employees of the Bank or the Holding Company will be separate
consideration for, or allocable to, any of their deposits in the Bank. No
interest in the Liquidation Account of the Stock Bank will be received by any
deposit account holder-employees as separate consideration for, or will
otherwise be allocable to, any employment agreement, and the compensation paid
to each deposit account holder-employee, during the twelve month period
preceding or subsequent to the Conversion, will be for services actually
rendered and will be commensurate with amounts paid to third parties bargaining
at arm's length for similar services. No shares of Holding Company Stock will be
issued to or purchased by any deposit account holder-employee of the Bank or the
Holding Company at a discount or as compensation in the Conversion.
9. The aggregate fair market value of the Qualifying Deposits held by
Eligible Account Holders or Supplemental Eligible Account Holders (if
applicable) as of the close of business on the Eligibility Record Date or
Supplemental Eligibility Record Date (if applicable) entitled to interests in
the Liquidation Account to be established by Stock Bank equalled or
<PAGE>
Board of Directors
Peoples Savings Bank
___________ ___, 1998
Page 9
exceeded 99% of the aggregate fair market value of all savings accounts
(including those accounts of less than $50.00) in the Bank as of the close of
business on such date.
10. There is no plan or intention for the Stock Bank to be liquidated
or merged with another corporation following the consummation of the Conversion.
11. The Bank and the Stock Bank are corporations within the meaning of
Section 7701(a)(3) of the Code.
12. The Holding Company has no plan or intention to sell or otherwise
dispose of the stock of the Stock Bank received by it in the proposed
transaction.
13. Both the Stock Bank and the Holding Company have no plan or
intention, either currently or at the time of the Conversion, to issue
additional shares of common stock following the proposed transaction, other than
shares that may be issued to employees or directors pursuant to certain stock
option and stock incentive plans or that may be issued to employee benefit
plans.
14. If all of the net proceeds from the sale of Holding Company Stock
had been contributed by the Holding Company to the Stock Bank in exchange for
common stock of the Stock Bank in the Conversion, as opposed to the Holding
Company retaining a portion of such net proceeds ("retained proceeds"), and if
the Stock Bank immediately thereafter made a distribution of the retained
proceeds to the Holding Company, the Stock Bank would have sufficient current
and accumulated earnings and profits for tax purposes such that the distribution
would not result in the recapture of any portion of the bad debt reserves of the
Stock Bank under Section 593(e) of the Code.
15. At the time of the proposed transaction, the fair market value of
the assets of the Bank on a going concern basis (including intangibles) will
equal or exceed the amount of its liabilities plus the amount of liability to
which such assets are subject. The Bank will have a positive regulatory net
worth at the time of the Conversion.
16. The Bank is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of Section 368(a)(3)(A) of the Code. The
proposed transaction does not involve a receivership, foreclosure, or similar
proceeding before a federal or state agency involving a financial institution to
which Section 585 or 593 of the Code applies.
17. The Bank's savings depositors will pay expenses of the Conversion
solely attributable to them, if any. The Holding Company, the Stock Bank, and
the Bank will pay their own expenses of the Conversion and will not pay any
expenses solely attributable to the savings depositors or to the Holding Company
stockholders.
<PAGE>
Board of Directors
Peoples Savings Bank
___________ ___, 1998
Page 10
18. The liabilities of the Bank assumed by the Stock Bank plus the
liabilities, if any, to which the transferred assets are subject were incurred
by the Bank in the ordinary course of its business and are associated with the
assets transferred.
19. There will be no purchase price advantage for the Bank's deposit
account holders who purchase Holding Company Stock in the Conversion.
20. Neither the Bank nor the Stock Bank is an investment company as
defined in Sections 368(a)(2)(F)(iii) and (iv) of the Code.
21. No creditors of the Bank have taken any steps to enforce their
claims against the Bank by instituting bankruptcy or other legal proceedings, in
either a court or appropriate regulatory agency, that would eliminate the
proprietary interests of the members of the Bank prior to the Conversion.
22. The proposed transaction does not involve the payment to the Stock
Bank or the Bank of financial assistance from federal agencies within the
meaning of Notice 89-102, 1989-40 C.B. 1.
23. The Eligible Account Holders' and Supplemental Eligible Account
Holders' proprietary interest in the Bank arise solely by virtue of the fact
that they are account holders in the Bank.
24. At the time of the Conversion, the Bank will not have outstanding
any warrants, options, convertible securities, or any other type of right
pursuant to which any person could acquire an equity interest in the Holding
Company or the Stock Bank.
25. The Stock Bank has no plan or intention to sell or otherwise
dispose of any of the assets of the Bank acquired in the transaction (except for
dispositions, including deposit withdrawals, made in the ordinary course of
business).
26. On a per share basis, the purchase price of the Holding Company
Stock in the Conversion will be equal to the fair market value of such stock at
the time of the completion of the proposed transaction.
27. The Bank has received or will receive an opinion from Finpro, Inc.
("Appraiser's Opinion"), which concludes that subscription rights to be received
by Eligible Account Holders, Supplemental Eligible Account Holders, and other
eligible subscribers do not have any ascertainable fair market value, because
they are acquired by the recipients without cost, are non-transferable, exist
for such a short duration, and merely afford the recipients a right only to
purchase Holding Company Stock at a price equal to its estimated fair market
value, which
<PAGE>
Board of Directors
Peoples Savings Bank
___________ ___, 1998
Page 11
will be the same price used in the Public Offering for unsubscribed shares of
Holding Company Stock.
28. The Bank will not have any net operating losses, capital loss
carryovers, or built-in losses at the time of the Conversion.
OPINION OF COUNSEL
------------------
Based solely upon the foregoing information and our analysis and
examination of current applicable federal income tax laws, rulings, regulations,
judicial precedents, and the Appraiser's Opinion, and provided the Conversion is
undertaken in accordance with the above assumptions, we render the following
opinion of counsel:
1. The change in the form of operation of the Bank from a federally
chartered mutual savings bank to a federally chartered capital stock savings
bank, as described above, will constitute a reorganization within the meaning of
Section 368(a)(1)(F) of the Code, and no gain or loss will be recognized to
either the Bank or to the Stock Bank as a result of such Conversion. (See Rev.
Rul. 80-105, 1980-1 C.B. 78). The Bank and the Stock Bank will each be a party
to a reorganization within the meaning of Section 368(b) of the Code. (Rev. Rul.
72-206, 1972-1 C.B. 104).
2. No gain or loss will be recognized by the Stock Bank on the receipt
of money in exchange for shares of Stock Bank stock. (Section 1032(a) of the
Code).
3. The Holding Company will recognize no gain or loss upon its receipt
of money in exchange for shares of Holding Company Stock. (Section 1032(a) of
the Code).
4. The assets of the Bank will have the same basis in the hands of the
Stock Bank as in the hands of the Bank immediately prior to the Conversion.
(Section 362(b) of the Code).
5. The holding period of the assets of the Bank to be received by the
Stock Bank will include the period during which the assets were held by the Bank
prior to the Conversion. (Section 1223(2) of the Code).
6. Depositors will realize gain, if any, upon the issuance to them of
(i) withdrawable deposit accounts of the Stock Bank, (ii) subscription rights in
connection with the Conversion, and/or (iii) interests in the Liquidation
Account of the Stock Bank. Any gain resulting therefrom will be recognized, but
only in an amount not in excess of the fair market value of the Liquidation
Accounts and/or subscription rights received. The Liquidation Accounts will have
nominal, if any, fair market value. Based solely on the accuracy of the
conclusion reached in the Appraiser's Opinion, and our reliance on such opinion,
that the subscription rights have no
<PAGE>
Board of Directors
Peoples Savings Bank
___________ ___, 1998
Page 12
value at the time of distribution or exercise, no gain or loss will be required
to be recognized by depositors upon receipt or distribution of subscription
rights. (Section 1001 of the Code). See Paulsen v. Commissioner, 469 U.S. 131,
139 (1985).
Likewise, based solely on the accuracy of the aforesaid conclusion
reached in the Appraiser's Opinion, and our reliance thereon, we give the
following opinions: (a) no taxable income will be recognized by the borrowers,
directors, officers, and employees of the Bank upon distribution to them of
subscription rights or upon the exercise or lapse of the subscription rights to
acquire Holding Company Stock at fair market value; (b) no taxable income will
be realized by the depositors of the Bank as a result of the exercise or lapse
of the subscription rights to purchase Holding Company Stock at fair market
value (Rev. Rul. 56-572, 1956-2 C.B. 182); and (c) no taxable income will be
realized by the Bank, the Stock Bank, or the Holding Company on the issuance or
distribution of subscription rights to depositors of the Bank to purchase shares
of Holding Company Stock at fair market value (Section 311 of the Code).
Notwithstanding the Appraiser's Opinion, if the subscription rights are
subsequently found to have a fair market value greater than zero, income may be
recognized by various recipients of the subscription rights (in certain cases,
whether or not the rights are exercised) and the Holding Company and/or the
Stock Bank may be taxable on the distribution of the subscription rights.
(Section 311 of the Code). In this regard, the subscription rights may be taxed
partially or entirely at ordinary income tax rates.
7. The basis of the savings accounts in the Stock Bank received by the
account holders of the Bank will be the same as the basis of their savings
accounts in the Bank surrendered in exchange therefor (Section 358(a)(1)). The
basis of the interests in the Liquidation Account of the Stock Bank received by
the Eligible Account Holders and Supplemental Eligible Account Holders will be
zero, that being the cost of such property. (Paulsen v. Commissioner, 469 U.S.
131, 139 (1985)). The basis of the non-transferable subscription rights will be
zero, provided that such subscription rights are not deemed to have a fair
market value and that the subscription price of such stock issuable upon
exercise of such rights is equal to the fair market value of such stock. The
basis of the Holding Company Stock to its stockholders will be purchase price
thereof, increased by the basis, if any, of the subscription rights exercised
(Section 1012 of the Code). The holding period of Holding Company Stock will
commence upon the effective date of exercise of the subscription rights (Section
1223(6) of the Code). The holding period for the Holding Company Stock purchased
pursuant to the direct community offering, public offering or under other
purchase arrangements will commence on the date following the date on which such
stock is purchased. (Rev. Rul. 70- 598, 1970-2 C.B. 168).
8. The part of the taxable year of the Bank before the Conversion and
the part of the taxable year of the Stock Bank after the Conversion will
constitute a single taxable year of the
<PAGE>
Board of Directors
Peoples Savings Bank
___________ ___, 1998
Page 13
Stock Bank. (See Rev. Rul. 57-276, 1957-1 C.B. 126). Consequently, the Bank will
not be required to file a federal income tax return for a portion of such
taxable year (Section 1.381(b)-1(a)(2) of the Treasury Regulations).
9. As provided by Section 381(c)(2) of the Code and Section
1.381(c)(2)-1 of the Treasury Regulations, the Stock Bank will succeed to and
take into account the earnings and profits or deficit in earnings and profits of
the Bank as of the date or dates of transfer.
10. Pursuant to the provisions of Section 381(c)(4) of the Code and
Section 1.381(c)(4)-1(a)(1)(ii) of the Treasury Regulations, the Stock Bank will
succeed to and take into account, immediately after the reorganization, those
accounts of the Bank which represent bad debt reserves in respect of which the
Bank has taken a bad debt deduction for taxable years ending on or before the
date of the reorganization. The bad debt reserves will not be required to be
restored to the gross income of either the Bank or the Stock Bank for the
taxable year of the reorganization, and such bad debt reserves will have the
same character in the hands of the Stock Bank as they would have had in the
hands of the Bank if no distribution or transfer had occurred. No opinion is
being expressed as to whether the bad debt reserves will be required to be
restored to the gross income of either the Bank or the Stock Bank for the
taxable year of the reorganization.
11. Regardless of book entries made for the creation of the Liquidation
Account, the Conversion, as described above, will not diminish the accumulated
earnings and profits of the Stock Bank available for the subsequent distribution
of dividends within the meaning of Section 316 of the Code. (Section 1.312-11(b)
and (c) of the Treasury Regulations).
12. For purposes of Section 381 of the Code, the Stock Bank will be
treated the same as the Bank would have been had there been no reorganization.
Accordingly, the taxable year of the Bank will not end on the effective date of
the proposed transaction merely because of the transfer of assets of the Bank to
the Stock Bank and the tax attributes of the Bank enumerated in Section 381(c)
will be taken into account by the Stock Bank as if there had been no
reorganization (Section 1.381(b)-1(a)(2)) of the Treasury Regulations).
No opinion is expressed as to the tax treatment of the Conversion under
the provisions of any of the other sections of the Code and Treasury Regulations
which may also be applicable thereto, or under federal law, or to the tax
treatment of any conditions existing at the time of, or effects resulting from,
the transactions which are not specifically covered by the items set forth
above. Notwithstanding any reference to Section 381 above, no opinion is
expressed or intended to be expressed herein as to the effect, if any, of this
transaction on the continued existence of, the carryover or carryback of, or the
limitation on, any net operating losses of the Bank or its successor, the Stock
Bank, under the Code.
<PAGE>
Board of Directors
Peoples Savings Bank
___________ ___, 1998
Page 14
We hereby consent to the filing of this opinion as an exhibit to the
Application for Conversion on Form AC of the Bank filed with the OTS, the
Application H-(e)(1)-S of the Holding Company filed with the OTS, and the
Registration Statement on Form SB-2 of the Holding Company filed under the
Securities Act of 1933, as amended, and to the reference of our firm in the
prospectus related to this opinion.
Very truly yours,
MALIZIA, SPIDI, SLOANE & FISCH, P.C.
EXHIBIT 8.2
<PAGE>
LEWIS W. PARKER, III
CERTIFIED PUBLIC ACCOUNTANT
- ------------------------------
P.O. BOX 6510, 9L PRINCESS ROAD
LAWRENCEVILLE, N.J. 08648
TEL.: 609-896-2177
FAX: 609-844-0133
June 12, 1998
Board of Directors
Peoples Savings Bank
789 Farnsworth Avenue
Bordentown, New Jersey 08505
Board Members:
You have requested my opinion regarding certain New Jersey tax consequences to
Peoples Savings Bank ("the Bank") and its depositors under the laws of the State
of New Jersey of the proposed conversion (the "Conversion"), under which the
Bank will be changed from a federally-chartered mutual savings bank to a
federally-chartered capital stock savings bank (the "Stock Bank"), a parent
holding company will be formed and incorporated in New Jersey (the "Holding
Company") to acquire all of the outstanding stock of the Stock Bank (the
"Acquisition"), and the stock of the Holding Company will be offered to the
public (the "Offering"), pursuant to a Plan of Conversion adopted by the Board
of Directors of the Bank on March 2, 1998 ("the Plan").
The Bank's special counsel, Malizia, Spidi, Sloane & Fisch, P.C., has previously
provided the Bank an opinion regarding the material federal income tax
consequences of the Conversion, the Acquisition, and the Offering (the "Federal
Tax Opinion"). Based upon the facts stated in the Federal Tax Opinion, including
certain representations of the Bank, the Federal Tax Opinion concludes, among
other things, that the Conversion qualifies as a tax-free reorganization under
ss 368(a)(1)(F) of the Internal Revenue Code of 1986, as amended ("Code"), and
that the Bank, the Stock Bank, and the Holding Company and the depositors of the
Bank will not recognize income, gain, or loss for federal income tax purposes
upon the implementation of the Conversion, the Acquisition, and the Offering.
Based upon the facts and circumstances attendant to the Conversion as detailed
in the Plan, and the provisions of the code and the Federal Tax Opinion
rendered, it is my opinion that the laws of the State of New Jersey will, for
income tax purposes, treat the Conversion transaction as detailed in the Plan in
an identical manner as it is treated by the Internal Revenue Service for income
tax purposes, and that under such state law no adverse income tax consequences
will be incurred by either the Bank or its account holders as a result of the
implementation of the Plan.
The opinion herein expressed specifically does not include, without limitation
by the specification thereof, an opinion with respect to any franchise tax or
capital stock taxes which might result from the implementation of the plan.
My opinion is based on the facts and conditions as stated herein, whether
directly or by reference to the Federal Tax Opinion. If any of the facts and
conditions are not entirely complete or accurate, it is imperative that I be
informed immediately, as the inaccuracy or incompleteness could have a material
effect on my conclusions. In rendering my opinion, I am relying upon the
relevant provisions of the Code, the laws of the State of New Jersey, as
amended, the regulations and rules thereunder and judicial and administrative
interpretations thereof, which are subject to change or modification by
subsequent legislative, regulatory, administrative, or judicial decisions. Any
such changes could also have an effect on the validity of my opinion. I
undertake no responsibility to update or supplement my opinion. My opinion is
not binding on the Internal Revenue Service or the State of New Jersey, nor can
any assurance be given that any of the foregoing parties will not take a
contrary position or that my opinion will be upheld if challenged by such
parties.
<PAGE>
Board of Directors
Peoples Savings Bank
June 12, 1998
Page 2
Finally, I hereby consent to the filing of this opinion as an exhibit to the
Application for Conversion on Form AC ("Form AC") or similar filings of the Bank
filed with the Office of Thrift Supervision, the filing of this opinion as an
exhibit to the Application H-(e)(1)S of the Holding Company to be filed with the
Office of Thrift Supervision, and the filing of this opinion as an exhibit to
the Holding Company's Registration Statement on Form SB-2 ("Form SB-2") to be
filed with the Securities and Exchange Commission, and to reference to my firm
in the offering circular contained in the Form AC, Form SB-2 and related
documents related to this opinion.
Very truly yours,
/s/Lewis W. Parker
- ------------------
Lewis W. Parker, III, CPA
EXHIBIT 8.3
<PAGE>
FINPRO [LOGO] 26 Church Street - P.O. Box 323
Liberty Corner, NJ 07938
(908) 604-9336 - (908) 604-5951 (FAX)
[email protected] - www.finpronj.com
- --------------------------------------------------------------------------------
June 12, 1998
Board of Directors
Peoples Savings Bank
789 Farnsworth Avenue
Bordentown, New Jersey 08505
Dear Board Members:
All capitalized terms not otherwise defined in this letter have the meanings
given such terms in the Plan of Conversion adopted by the Board of Directors of
Peoples Savings Bank (the "Bank"), whereby the Bank will convert from a
federally chartered mutual savings bank to a federally chartered stock savings
bank and issue all of the Bank's stock to Farnsworth Bancorp, Inc. (the "Holding
Company"). Simultaneously, the Holding Company will issue shares of common
stock.
We understand that in accordance with the Plan of Conversion, Subscription
Rights to purchase shares of the Bank's Common Stock in the Holding Company are
to be issued to (i) Eligible Account Holders, (ii) the ESOP, (iii) Supplemental
Eligible Account Holders, and (iv) Other Members. Based solely on our
observation that the Subscription Rights will be available to such Recipients
without cost, will be legally non-transferable and of short duration, and will
afford such parties the right only to purchase shares of Common Stock at the
same price as will be paid by members of the general public in the Community
Offering, but without undertaking any independent investigation of state or
federal law or the position of the Internal Revenue Service with respect to this
issue, we are of the opinion that:
(1) the Subscription Rights will have no ascertainable market value; and
(2) the price at which the Subscription Rights are excercisable will not
be more or less than the pro forma market value of the shares upon
issuance.
Changes in the local and national economy, the legislative and regulatory
environment, the stock market, interest rates, and other external forces (such
as natural disasters or significant world events) may occur from time to time,
often with great unpredictability and may materially impact the value of thrift
stocks as a whole or the Bank's value alone. Accordingly, no assurance can be
given that persons who subscribe to shares of Common Stock in the Conversion
will thereafter be able to buy or sell such shares at the same price paid in the
Subscription Offering.
Very Truly Yours,
FinPro, Inc.
/s/Kenneth G. Emerson, CPA
------------------------------------
Kenneth G. Emerson, CPA
Director
EXHIBIT 10.1
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT, is entered into this 14th day of May 1998, (Effective)
Date") by and between Peoples Savings Bank, Bordentown, New Jersey (the "Savings
Bank") and Gary N. Pelehaty (the "Executive").
WITNESSETH
WHEREAS, the Executive has heretofore been employed by the Savings Bank
as the President and Chief Executive Officer and is experienced in all phases of
the business of the Savings Bank; and
WHEREAS, the Savings Bank desires to be ensured of the Executive's
continued active participation in the business of the Savings Bank; and
WHEREAS, in order to induce the Executive to remain in the employ of
the Savings Bank and in consideration of the Executive's agreeing to remain in
the employ of the Savings Bank, the parties desire to specify the continuing
employment relationship between the Savings Bank and the Executive;
NOW THEREFORE, in consideration of the premises and the mutual
agreements herein contained, the parties hereby agree as follows:
1. Employment. The Savings Bank hereby employs the Executive in the
capacity of President and Chief Executive Officer. The Executive hereby accepts
said employment and agrees to render such administrative and management services
to the Savings Bank and to any to-be-formed parent holding company ("Parent") as
are currently rendered and as are customarily performed by persons situated in a
similar executive capacity. The Executive shall promote the business of the
Savings Bank and Parent. The Executive's other duties shall be such as the Board
of Directors for the Savings Bank (the "Board of Directors" or "Board") may from
time to time reasonably direct, including normal duties as an officer of the
Savings Bank.
2. Term of Employment. The term of employment of Executive under this
Agreement shall be for the period commencing on the Effective Date and ending
thirty-six (36) months thereafter ("Term"). Additionally, on, or before, each
annual anniversary date from the Effective Date, the Term of employment under
this Agreement shall be extended for up to an additional period beyond the then
effective expiration date upon a determination and resolution of the Board of
Directors that the performance of the Executive has met the requirements and
standards of the Board, and that the Term of such Agreement shall be extended.
References herein to the Term of this Agreement shall refer both to the initial
term and successive terms.
<PAGE>
3. Compensation, Benefits and Expenses.
(a) Base Salary. The Savings Bank shall compensate and pay the
Executive during the Term of this Agreement a minimum base salary at the rate of
$90,000.00 per annum ("Base Salary"), payable in cash not less frequently than
monthly; provided, that the rate of such salary shall be reviewed by the Board
of Directors not less often than annually, and the Executive shall be entitled
to receive increases at such percentages or in such amounts as determined by the
Board of Directors. The base salary may not be decreased without the Executive's
express written consent.
(b) Discretionary Bonus. The Executive shall be entitled to
participate in an equitable manner with all other senior management employees of
the Savings Bank in discretionary bonuses that may be authorized and declared by
the Board of Directors to its senior management executives from time to time. No
other compensation provided for in this Agreement shall be deemed a substitute
for the Executive's right to participate in such discretionary bonuses when and
as declared by the Board.
(c) Participation in Benefit and Retirement Plans. The Executive
shall be entitled to participate in and receive the benefits of any plan of the
Savings Bank which may be or may become applicable to senior management relating
to pension or other retirement benefit plans, profit-sharing, stock options or
incentive plans, or other plans, benefits and privileges given to employees and
executives of the Savings Bank, to the extent commensurate with his then duties
and responsibilities, as fixed by the Board of Directors of the Savings Bank.
(d) Participation in Medical Plans and Insurance Policies. The
Executive shall be entitled to participate in and receive the benefits of any
plan or policy of the Savings Bank which may be or may become applicable to
senior management relating to life insurance, short and long term disability,
medical, dental, eye-care, prescription drugs or medical reimbursement plans.
Additionally, Executive's dependent family shall be eligible to participate in
medical and dental insurance plans sponsored by the Savings Bank or Parent with
the cost of such premiums paid by the Savings Bank.
(e) Vacations and Sick Leave. The Executive shall be entitled to
paid annual vacation leave in accordance with the policies as established from
time to time by the Board of Directors, which shall in no event be less than
four weeks per annum. The Executive shall also be entitled to an annual sick
leave benefit as established by the Board for senior management employees of the
Savings Bank. The Executive shall be entitled to receive additional compensation
at the end of each calendar year based upon any vacation days that have been
accrued for such calendar year that have not been utilized by the Executive. At
the discretion of the Board, accrued but unutilized sick leave may also be paid
out as additional compensation at the end of each year.
(f) Expenses. The Savings Bank shall reimburse the Executive or
otherwise provide for or pay for all reasonable expenses incurred by the
Executive in furtherance of, or
2
<PAGE>
in connection with the business of the Savings Bank, including, but not by way
of limitation, automobile and traveling expenses, and all reasonable
entertainment expenses, subject to such reasonable documentation and other
limitations as may be established by the Board of Directors of the Savings Bank.
If such expenses are paid in the first instance by the Executive, the Savings
Bank shall reimburse the Executive therefor.
(g) Changes in Benefits. The Savings Bank shall not make any
changes in such plans, benefits or privileges previously described in Section
3(c), (d) and (e) which would adversely affect the Executive's rights or
benefits thereunder, unless such change occurs pursuant to a program applicable
to all executive officers of the Savings Bank and does not result in a
proportionately greater adverse change in the rights of, or benefits to, the
Executive as compared with any other executive officer of the Savings Bank.
Nothing paid to Executive under any plan or arrangement presently in effect or
made available in the future shall be deemed to be in lieu of the salary payable
to Executive pursuant to Section 3(a) hereof.
4. Loyalty; Noncompetition.
(a) The Executive shall devote his full time and attention to the
performance of his employment under this Agreement. During the term of the
Executive's employment under this Agreement, the Executive shall not engage in
any business or activity contrary to the business affairs or interests of the
Savings Bank or Parent.
(b) Nothing contained in this Section 4 shall be deemed to
prevent or limit the right of Executive to invest in the capital stock or other
securities of any business dissimilar from that of the Savings Bank or Parent,
or, solely as a passive or minority investor, in any business.
5. Standards. During the term of this Agreement, the Executive shall
perform his duties in accordance with such reasonable standards expected of
executives with comparable positions in comparable organizations and as may be
established from time to time by the Board of Directors.
6. Termination and Termination Pay. The Executive's employment under
this Agreement shall be terminated upon any of the following occurrences:
(a) The death of the Executive during the term of this Agreement,
in which event the Executive's estate shall be entitled to receive the
compensation due the Executive through the last day of the calendar month in
which Executive's death shall have occurred.
(b) The Board of Directors may terminate the Executive's
employment at any time, but any termination by the Board of Directors other than
termination for Just Cause, shall not prejudice the Executive's right to
compensation or other benefits under the Agreement. The Executive shall have no
right to receive compensation or other benefits for any period after termination
for Just Cause. The Board may within its sole discretion, acting in good faith,
terminate the Executive for Just Cause and shall notify such Executive
accordingly. Termination
3
<PAGE>
for "Just Cause" shall include termination because of the Executive's personal
dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving
personal profit, intentional failure to perform stated duties, willful violation
of any law, rule or regulation (other than traffic violations or similar
offenses) or final cease-and-desist order, or material breach of any provision
of the Agreement.
(c) Except as provided pursuant to Section 9 hereof, in the event
Executive's employment under this Agreement is terminated by the Board of
Directors without Just Cause, the Savings Bank shall be obligated to continue to
pay the Executive the salary provided pursuant to Section 3(a) herein, up to the
date of termination of the remaining Term of this Agreement, but in no event for
a period of less than twelve months, and the cost of Executive obtaining all
health, life, disability, and other benefits which the Executive would be
eligible to participate in through such date based upon the benefit levels
substantially equal to those being provided Executive at the date of termination
of employment.
(d) The voluntary termination by the Executive during the term of
this Agreement with the delivery of no less than 60 days written notice to the
Board of Directors, other than pursuant to Section 9(b), in which case the
Executive shall be entitled to receive only the compensation, vested rights, and
all employee benefits up to the date of such termination.
7. Regulatory Exclusions.
(a) If the Executive is suspended and/or temporarily prohibited from
participating in the conduct of the Savings Bank's affairs by a notice served
under Section 8(e)(3) or (g)(1) of the FDIA (12 U.S.C. 1818(e)(3) and (g)(1)),
the Savings Bank's obligations under the Agreement shall be suspended as of the
date of service, unless stayed by appropriate proceedings. If the charges in the
notice are dismissed, the Savings Bank may within its discretion (i) pay the
Executive all or part of the compensation withheld while its contract
obligations were suspended and (ii) reinstate any of its obligations which were
suspended.
(b) If the Executive is removed and/or permanently prohibited from
participating in the conduct of the Savings Bank's affairs by an order issued
under Sections 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act ("FDIA")
(12 U.S.C. 1818(e)(4) and (g)(1)), all obligations of the Savings Bank under
this Agreement shall terminate, as of the effective date of the order, but the
vested rights of the parties shall not be affected.
(c) If the Savings Bank is in default (as defined in Section 3(x)(1) of
FDIA) all obligations under this Agreement shall terminate as of the date of
default, but this paragraph shall not affect any vested rights of the
contracting parties.
(d) All obligations under this Agreement shall be terminated, except to
the extent determined that continuation of this Agreement is necessary for the
continued operation of the Savings Bank: (i) by the Director of the Office of
Thrift Supervision ("Director of OTS"), or his or her designee, at the time that
the Federal Deposit Insurance Corporation ("FDIC") enters
4
<PAGE>
into an agreement to provide assistance to or on behalf of the Savings Bank
under the authority contained in Section 13(c) of FDIA; or (ii) by the Director
of the OTS, or his or her designee, at the time that the Director of the OTS, or
his or her designee approves a supervisory merger to resolve problems related to
operation of the Savings Bank or when the Savings Bank is determined by the
Director of the OTS to be in an unsafe or unsound condition. Any rights of the
parties that have already vested, however, shall not be affected by such action.
(e) Notwithstanding anything herein to the contrary, any payments made
to the Executive pursuant to the Agreement, or otherwise, shall be subject to
and conditioned upon compliance with 12 USC ss.1828(k) and any regulations
promulgated thereunder.
8. Disability. If the Executive shall become disabled or incapacitated
to the extent that he is unable to perform his duties hereunder, by reason of
medically determinable physical or mental impairment, as determined by a doctor
engaged by the Board of Directors, Executive shall nevertheless continue to
receive the compensation and benefits provided under the terms of this Agreement
as follows: 100% of such compensation and benefits for a period of 12 months,
but not exceeding the remaining term of the Agreement, and 65% thereafter for
the remainder of the term of the Agreement. Such benefits noted herein shall be
reduced by any benefits otherwise provided to the Executive during such period
under the provisions of disability insurance coverage in effect for Savings Bank
employees. Thereafter, Executive shall be eligible to receive benefits provided
by the Savings Bank under the provisions of disability insurance coverage in
effect for Savings Bank employees. Upon returning to active full-time
employment, the Executive's full compensation as set forth in this Agreement
shall be reinstated as of the date of commencement of such activities. In the
event that the Executive returns to active employment on other than a full-time
basis, then his compensation (as set forth in Section 3(a) of this Agreement)
shall be reduced in proportion to the time spent in said employment, or as shall
otherwise be agreed to by the parties.
9. Change in Control.
(a) Notwithstanding any provision herein to the contrary, in the
event of the involuntary termination of Executive's employment during the term
of this Agreement following any Change in Control of the Savings Bank or Parent,
or within 24 months thereafter of such Change in Control, absent Just Cause,
Executive shall be paid an amount equal to the product of 2.999 times the
Executive's "base amount" as defined in Section 280G(b)(3) of the Internal
Revenue Code of 1986, as amended (the "Code") and regulations promulgated
thereunder. Said sum shall be paid, at the option of Executive, either in one
(1) lump sum within thirty (30) days of such termination of service or in
periodic payments over the next 36 months or the remaining term of this
Agreement, whichever is less, as if Executive's employment had not been
terminated, and such payments shall be in lieu of any other future payments
which the Executive would be otherwise entitled to receive under Section 6 of
this Agreement. Notwithstanding the forgoing, all sums payable hereunder shall
be reduced in such manner and to such extent so that no such payments made
hereunder when aggregated with all other payments to be made to the Executive by
the Savings Bank or the Parent shall be deemed an "excess parachute payment"
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in accordance with Section 280G of the Code and be subject to the excise tax
provided at Section 4999(a) of the Code. The term "Change in Control" shall
refer to (i) the control of voting proxies whether related to stockholders or
mutual members by any person, other than the Board of Directors of the Savings
Bank, to direct more than 25% of the outstanding votes of the Savings Bank, the
control of the election of a majority of the Savings Bank's directors, or the
exercise of a controlling influence over the management or policies of the
Savings Bank by any person or by persons acting as a group within the meaning of
Section 13(d) of the Exchange Act, (ii) an event whereby the OTS, FDIC or any
other department, agency or quasi-agency of the federal government cause or
bring about, without the consent of the Savings Bank, a change in the corporate
structure or organization of the Savings Bank; (iii) an event whereby the OTS,
FDIC or any other agency or quasi-agency of the federal government cause or
bring about, without the consent of the Savings Bank, a taxation or involuntary
distribution of retained earnings or proceeds from the sale of securities to
depositors, borrowers, any government agency or organization or civic or
charitable organization; or (iv) a merger or other business combination between
the Savings Bank and another corporate entity whereby the Savings Bank is not
the surviving entity. In the event that the Savings Bank shall convert in the
future from mutual-to-stock form, the term "Change in Control" shall also refer
to: (i) the sale of all, or a material portion, of the assets of the Savings
Bank or the Parent; (ii) the merger or recapitalization of the Savings Bank or
the Parent whereby the Savings Bank or the Parent is not the surviving entity;
(iii) a change in control of the Savings Bank or the Parent, as otherwise
defined or determined by the Office of Thrift Supervision or regulations
promulgated by it; or (iv) the acquisition, directly or indirectly, of the
beneficial ownership (within the meaning of that term as it is used in Section
13(d) of the Securities Exchange Act of 1934 and the rules and regulations
promulgated thereunder) of twenty-five percent (25%) or more of the outstanding
voting securities of the Savings Bank or the Parent by any person, trust, entity
or group. The term "person" means an individual other than the Executive, or a
corporation, partnership, trust, association, joint venture, pool, syndicate,
sole proprietorship, unincorporated organization or any other form of entity not
specifically listed herein.
(b) Notwithstanding any other provision of this Agreement to the
contrary, Executive may voluntarily terminate his employment during the term of
this Agreement following a Change in Control of the Savings Bank or Parent, or
within twenty-four months following such Change in Control, and Executive shall
thereupon be entitled to receive the payment described in Section 9(a) of this
Agreement, upon the occurrence, or within 120 days thereafter, of any of the
following events, which have not been consented to in advance by the Executive
in writing: (i) if Executive would be required to move his personal residence or
perform his principal executive functions more than thirty-five (35) miles from
the Executive's primary office as of the signing of this Agreement; (ii) if in
the organizational structure of the Savings Bank, Executive would be required to
report to a person or persons other than the Board of Directors of the Savings
Bank; (iii) if the Savings Bank should fail to maintain Executive's base
compensation in effect as of the date of the Change in Control and the existing
employee benefits plans, including material fringe benefit, stock option and
retirement plans; (iv) if Executive would be assigned duties and
responsibilities other than those normally associated with his position as
referenced at Section 1, herein; (v) if Executive's responsibilities or
authority
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have in any way been materially diminished or reduced; or (vi) if Executive
would not be reelected to the Board of Directors of the Savings Bank.
10. Withholding. All payments required to be made by the Savings Bank
hereunder to the Executive shall be subject to the withholding of such amounts,
if any, relating to tax and other payroll deductions as the Savings Bank may
reasonably determine should be withheld pursuant to any applicable law or
regulation.
11. Successors and Assigns.
(a) This Agreement shall inure to the benefit of and be binding
upon any corporate or other successor of the Savings Bank or Parent which shall
acquire, directly or indirectly, by merger, consolidation, purchase or
otherwise, all or substantially all of the assets or stock of the Savings Bank
or Parent.
(b) Since the Savings Bank is contracting for the unique and
personal skills of the Executive, the Executive shall be precluded from
assigning or delegating his rights or duties hereunder without first obtaining
the written consent of the Savings Bank.
12. Amendment; Waiver. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing, signed by the Executive and such officer or officers as may be
specifically designated by the Board of Directors of the Savings Bank to sign on
its behalf. No waiver by any party hereto at any time of any breach by any other
party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time.
13. Governing Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the United States
where applicable and otherwise by the substantive laws of the State of New
Jersey.
14. Nature of Obligations. Nothing contained herein shall create or
require the Savings Bank to create a trust of any kind to fund any benefits
which may be payable hereunder, and to the extent that the Executive acquires a
right to receive benefits from the Savings Bank hereunder, such right shall be
no greater than the right of any unsecured general creditor of the Savings Bank.
15. Headings. The section headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
16. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of the other
provisions of this Agreement, which shall remain in full force and effect.
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<PAGE>
17. Arbitration. Any controversy or claim arising out of or relating to
this Agreement, or the breach thereof, shall be settled by arbitration in
accordance with the rules then in effect of the district office of the American
Arbitration Association ("AAA") nearest to the home office of the Savings Bank,
and judgment upon the award rendered may be entered in any court having
jurisdiction thereof, except to the extent that the parties may otherwise reach
a mutual settlement of such issue. Further, the settlement of the dispute to be
approved by the Board of the Savings Bank may include a provision for the
reimbursement by the Savings Bank to the Executive for all reasonable costs and
expenses, including reasonable attorneys' fees, arising from such dispute,
proceedings or actions, or the Board of the Savings Bank or the Parent may
authorize such reimbursement of such reasonable costs and expenses by separate
action upon a written action and determination of the Board following settlement
of the dispute. Such reimbursement shall be paid within ten (10) days of
Executive furnishing to the Savings Bank or Parent evidence, which may be in the
form, among other things, of a canceled check or receipt, of any costs or
expenses incurred by Executive.
18. Confidential Information. The Executive acknowledges that during his
or her employment he or she will learn and have access to confidential
information regarding the Savings Bank and the Parent and its customers and
businesses ("Confidential Information"). The Executive agrees and covenants not
to disclose or use for his or her own benefit, or the benefit of any other
person or entity, any such Confidential Information, unless or until the Savings
Bank or the Parent consents to such disclosure or use or such information
becomes common knowledge in the industry or is otherwise legally in the public
domain. The Executive shall not knowingly disclose or reveal to any unauthorized
person any Confidential Information relating to the Savings Bank, the Parent, or
any subsidiaries or affiliates, or to any of the businesses operated by them,
and the Executive confirms that such information constitutes the exclusive
property of the Savings Bank and the Parent. The Executive shall not otherwise
knowingly act or conduct himself (a) to the material detriment of the Savings
Bank or the Parent, or its subsidiaries, or affiliates, or (b) in a manner which
is inimical or contrary to the interests of the Savings Bank or the Parent.
Executive acknowledges and agrees that the existence of this Agreement and its
terms and conditions constitutes Confidential Information of the Savings Bank,
and the Executive agrees not to disclose the Agreement or its contents without
the prior written consent of the Savings Bank. Notwithstanding the foregoing,
the Savings Bank reserves the right in its sole discretion to make disclosure of
this Agreement as it deems necessary or appropriate in compliance with its
regulatory reporting requirements. Notwithstanding anything herein to the
contrary, failure by the Executive to comply with the provisions of this Section
may result in the immediate termination of the Agreement within the sole
discretion of the Savings Bank, disciplinary action against the Executive taken
by the Savings Bank, including but not limited to the termination of employment
of the Executive for breach of the Agreement and the provisions of this Section,
and other remedies that may be available in law or in equity.
19. Entire Agreement. This Agreement together with any understanding or
modifications thereof as agreed to in writing by the parties, shall constitute
the entire agreement between the parties hereto.
8
EXHIBIT 10.2
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT, is entered into this 14th day of May 1998, ("Effective)
Date") by and between Peoples Savings Bank, Bordentown, New Jersey (the "Savings
Bank") and Charles Alessi (the "Executive").
WITNESSETH
WHEREAS, the Executive has heretofore been employed by the Savings Bank
as the Vice President and Chief Financial Officer and is experienced in all
phases of the business of the Savings Bank; and
WHEREAS, the Savings Bank desires to be ensured of the Executive's
continued active participation in the business of the Savings Bank; and
WHEREAS, in order to induce the Executive to remain in the employ of
the Savings Bank and in consideration of the Executive's agreeing to remain in
the employ of the Savings Bank, the parties desire to specify the continuing
employment relationship between the Savings Bank and the Executive;
NOW THEREFORE, in consideration of the premises and the mutual
agreements herein contained, the parties hereby agree as follows:
1. Employment. The Savings Bank hereby employs the Executive in the
capacity of Vice President and Chief Financial Officer. The Executive hereby
accepts said employment and agrees to render such administrative and management
services to the Savings Bank and to any to-be-formed parent holding company
("Parent") as are currently rendered and as are customarily performed by persons
situated in a similar executive capacity. The Executive shall promote the
business of the Savings Bank and Parent. The Executive's other duties shall be
such as the Board of Directors for the Savings Bank (the "Board of Directors" or
"Board") may from time to time reasonably direct, including normal duties as an
officer of the Savings Bank.
2. Term of Employment. The term of employment of Executive under this
Agreement shall be for the period commencing on the Effective Date and ending
thirty-six (36) months thereafter ("Term"). Additionally, on, or before, each
annual anniversary date from the Effective Date, the Term of employment under
this Agreement shall be extended for up to an additional period beyond the then
effective expiration date upon a determination and resolution of the Board of
Directors that the performance of the Executive has met the requirements and
standards of the Board, and that the Term of such Agreement shall be extended.
References herein to the Term of this Agreement shall refer both to the initial
term and successive terms.
<PAGE>
3. Compensation, Benefits and Expenses.
(a) Base Salary. The Savings Bank shall compensate and pay the
Executive during the Term of this Agreement a minimum base salary at the rate of
$50,000 per annum ("Base Salary"), payable in cash not less frequently than
monthly; provided, that the rate of such salary shall be reviewed by the Board
of Directors not less often than annually, and the Executive shall be entitled
to receive increases at such percentages or in such amounts as determined by the
Board of Directors. The base salary may not be decreased without the Executive's
express written consent.
(b) Discretionary Bonus. The Executive shall be entitled to
participate in an equitable manner with all other senior management employees of
the Savings Bank in discretionary bonuses that may be authorized and declared by
the Board of Directors to its senior management executives from time to time. No
other compensation provided for in this Agreement shall be deemed a substitute
for the Executive's right to participate in such discretionary bonuses when and
as declared by the Board.
(c) Participation in Benefit and Retirement Plans. The Executive
shall be entitled to participate in and receive the benefits of any plan of the
Savings Bank which may be or may become applicable to senior management relating
to pension or other retirement benefit plans, profit-sharing, stock options or
incentive plans, or other plans, benefits and privileges given to employees and
executives of the Savings Bank, to the extent commensurate with his then duties
and responsibilities, as fixed by the Board of Directors of the Savings Bank.
(d) Participation in Medical Plans and Insurance Policies. The
Executive shall be entitled to participate in and receive the benefits of any
plan or policy of the Savings Bank which may be or may become applicable to
senior management relating to life insurance, short and long term disability,
medical, dental, eye-care, prescription drugs or medical reimbursement plans.
Additionally, Executive's dependent family shall be eligible to participate in
medical and dental insurance plans sponsored by the Savings Bank or Parent with
the cost of such premiums paid by the Savings Bank.
(e) Vacations and Sick Leave. The Executive shall be entitled to
paid annual vacation leave in accordance with the policies as established from
time to time by the Board of Directors, which shall in no event be less than
four weeks per annum. The Executive shall also be entitled to an annual sick
leave benefit as established by the Board for senior management employees of the
Savings Bank. The Executive shall be entitled to receive additional compensation
at the end of each calendar year based upon any vacation days that have been
accrued for such calendar year that have not been utilized by the Executive. At
the discretion of the Board, accrued but unutilized sick leave may also be paid
out as additional compensation at the end of each year.
(f) Expenses. The Savings Bank shall reimburse the Executive or
otherwise provide for or pay for all reasonable expenses incurred by the
Executive in furtherance of, or
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<PAGE>
in connection with the business of the Savings Bank, including, but not by way
of limitation, automobile and traveling expenses, and all reasonable
entertainment expenses, subject to such reasonable documentation and other
limitations as may be established by the Board of Directors of the Savings Bank.
If such expenses are paid in the first instance by the Executive, the Savings
Bank shall reimburse the Executive therefor.
(g) Changes in Benefits. The Savings Bank shall not make any
changes in such plans, benefits or privileges previously described in Section
3(c), (d) and (e) which would adversely affect the Executive's rights or
benefits thereunder, unless such change occurs pursuant to a program applicable
to all executive officers of the Savings Bank and does not result in a
proportionately greater adverse change in the rights of, or benefits to, the
Executive as compared with any other executive officer of the Savings Bank.
Nothing paid to Executive under any plan or arrangement presently in effect or
made available in the future shall be deemed to be in lieu of the salary payable
to Executive pursuant to Section 3(a) hereof.
4. Loyalty; Noncompetition.
(a) The Executive shall devote his full time and attention to the
performance of his employment under this Agreement. During the term of the
Executive's employment under this Agreement, the Executive shall not engage in
any business or activity contrary to the business affairs or interests of the
Savings Bank or Parent.
(b) Nothing contained in this Section 4 shall be deemed to
prevent or limit the right of Executive to invest in the capital stock or other
securities of any business dissimilar from that of the Savings Bank or Parent,
or, solely as a passive or minority investor, in any business.
5. Standards. During the term of this Agreement, the Executive shall
perform his duties in accordance with such reasonable standards expected of
executives with comparable positions in comparable organizations and as may be
established from time to time by the Board of Directors.
6. Termination and Termination Pay. The Executive's employment under
this Agreement shall be terminated upon any of the following occurrences:
(a) The death of the Executive during the term of this Agreement,
in which event the Executive's estate shall be entitled to receive the
compensation due the Executive through the last day of the calendar month in
which Executive's death shall have occurred.
(b) The Board of Directors may terminate the Executive's
employment at any time, but any termination by the Board of Directors other than
termination for Just Cause, shall not prejudice the Executive's right to
compensation or other benefits under the Agreement. The Executive shall have no
right to receive compensation or other benefits for any period after termination
for Just Cause. The Board may within its sole discretion, acting in good faith,
terminate the Executive for Just Cause and shall notify such Executive
accordingly. Termination
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<PAGE>
for "Just Cause" shall include termination because of the Executive's personal
dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving
personal profit, intentional failure to perform stated duties, willful violation
of any law, rule or regulation (other than traffic violations or similar
offenses) or final cease-and-desist order, or material breach of any provision
of the Agreement.
(c) Except as provided pursuant to Section 9 hereof, in the event
Executive's employment under this Agreement is terminated by the Board of
Directors without Just Cause, the Savings Bank shall be obligated to continue to
pay the Executive the salary provided pursuant to Section 3(a) herein, up to the
date of termination of the remaining Term of this Agreement, but in no event for
a period of less than twelve months, and the cost of Executive obtaining all
health, life, disability, and other benefits which the Executive would be
eligible to participate in through such date based upon the benefit levels
substantially equal to those being provided Executive at the date of termination
of employment.
(d) The voluntary termination by the Executive during the term of
this Agreement with the delivery of no less than 60 days written notice to the
Board of Directors, other than pursuant to Section 9(b), in which case the
Executive shall be entitled to receive only the compensation, vested rights, and
all employee benefits up to the date of such termination.
7. Regulatory Exclusions.
(a) If the Executive is suspended and/or temporarily prohibited from
participating in the conduct of the Savings Bank's affairs by a notice served
under Section 8(e)(3) or (g)(1) of the FDIA (12 U.S.C. 1818(e)(3) and (g)(1)),
the Savings Bank's obligations under the Agreement shall be suspended as of the
date of service, unless stayed by appropriate proceedings. If the charges in the
notice are dismissed, the Savings Bank may within its discretion (i) pay the
Executive all or part of the compensation withheld while its contract
obligations were suspended and (ii) reinstate any of its obligations which were
suspended.
(b) If the Executive is removed and/or permanently prohibited from
participating in the conduct of the Savings Bank's affairs by an order issued
under Sections 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act ("FDIA")
(12 U.S.C. 1818(e)(4) and (g)(1)), all obligations of the Savings Bank under
this Agreement shall terminate, as of the effective date of the order, but the
vested rights of the parties shall not be affected.
(c) If the Savings Bank is in default (as defined in Section 3(x)(1) of
FDIA) all obligations under this Agreement shall terminate as of the date of
default, but this paragraph shall not affect any vested rights of the
contracting parties.
(d) All obligations under this Agreement shall be terminated, except to
the extent determined that continuation of this Agreement is necessary for the
continued operation of the Savings Bank: (i) by the Director of the Office of
Thrift Supervision ("Director of OTS"), or his or her designee, at the time that
the Federal Deposit Insurance Corporation ("FDIC") enters
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<PAGE>
into an agreement to provide assistance to or on behalf of the Savings Bank
under the authority contained in Section 13(c) of FDIA; or (ii) by the Director
of the OTS, or his or her designee, at the time that the Director of the OTS, or
his or her designee approves a supervisory merger to resolve problems related to
operation of the Savings Bank or when the Savings Bank is determined by the
Director of the OTS to be in an unsafe or unsound condition. Any rights of the
parties that have already vested, however, shall not be affected by such action.
(e) Notwithstanding anything herein to the contrary, any payments made
to the Executive pursuant to the Agreement, or otherwise, shall be subject to
and conditioned upon compliance with 12 USC ss.1828(k) and any regulations
promulgated thereunder.
8. Disability. If the Executive shall become disabled or incapacitated
to the extent that he is unable to perform his duties hereunder, by reason of
medically determinable physical or mental impairment, as determined by a doctor
engaged by the Board of Directors, Executive shall nevertheless continue to
receive the compensation and benefits provided under the terms of this Agreement
as follows: 100% of such compensation and benefits for a period of 12 months,
but not exceeding the remaining term of the Agreement, and 65% thereafter for
the remainder of the term of the Agreement. Such benefits noted herein shall be
reduced by any benefits otherwise provided to the Executive during such period
under the provisions of disability insurance coverage in effect for Savings Bank
employees. Thereafter, Executive shall be eligible to receive benefits provided
by the Savings Bank under the provisions of disability insurance coverage in
effect for Savings Bank employees. Upon returning to active full-time
employment, the Executive's full compensation as set forth in this Agreement
shall be reinstated as of the date of commencement of such activities. In the
event that the Executive returns to active employment on other than a full-time
basis, then his compensation (as set forth in Section 3(a) of this Agreement)
shall be reduced in proportion to the time spent in said employment, or as shall
otherwise be agreed to by the parties.
9. Change in Control.
(a) Notwithstanding any provision herein to the contrary, in the
event of the involuntary termination of Executive's employment during the term
of this Agreement following any Change in Control of the Savings Bank or Parent,
or within 24 months thereafter of such Change in Control, absent Just Cause,
Executive shall be paid an amount equal to the product of 2.999 times the
Executive's "base amount" as defined in Section 280G(b)(3) of the Internal
Revenue Code of 1986, as amended (the "Code") and regulations promulgated
thereunder. Said sum shall be paid, at the option of Executive, either in one
(1) lump sum within thirty (30) days of such termination of service or in
periodic payments over the next 36 months or the remaining term of this
Agreement, whichever is less, as if Executive's employment had not been
terminated, and such payments shall be in lieu of any other future payments
which the Executive would be otherwise entitled to receive under Section 6 of
this Agreement. Notwithstanding the forgoing, all sums payable hereunder shall
be reduced in such manner and to such extent so that no such payments made
hereunder when aggregated with all other payments to be made to the Executive by
the Savings Bank or the Parent shall be deemed an "excess parachute payment"
5
<PAGE>
in accordance with Section 280G of the Code and be subject to the excise tax
provided at Section 4999(a) of the Code. The term "Change in Control" shall
refer to (i) the control of voting proxies whether related to stockholders or
mutual members by any person, other than the Board of Directors of the Savings
Bank, to direct more than 25% of the outstanding votes of the Savings Bank, the
control of the election of a majority of the Savings Bank's directors, or the
exercise of a controlling influence over the management or policies of the
Savings Bank by any person or by persons acting as a group within the meaning of
Section 13(d) of the Exchange Act, (ii) an event whereby the OTS, FDIC or any
other department, agency or quasi-agency of the federal government cause or
bring about, without the consent of the Savings Bank, a change in the corporate
structure or organization of the Savings Bank; (iii) an event whereby the OTS,
FDIC or any other agency or quasi-agency of the federal government cause or
bring about, without the consent of the Savings Bank, a taxation or involuntary
distribution of retained earnings or proceeds from the sale of securities to
depositors, borrowers, any government agency or organization or civic or
charitable organization; or (iv) a merger or other business combination between
the Savings Bank and another corporate entity whereby the Savings Bank is not
the surviving entity. In the event that the Savings Bank shall convert in the
future from mutual-to-stock form, the term "Change in Control" shall also refer
to: (i) the sale of all, or a material portion, of the assets of the Savings
Bank or the Parent; (ii) the merger or recapitalization of the Savings Bank or
the Parent whereby the Savings Bank or the Parent is not the surviving entity;
(iii) a change in control of the Savings Bank or the Parent, as otherwise
defined or determined by the Office of Thrift Supervision or regulations
promulgated by it; or (iv) the acquisition, directly or indirectly, of the
beneficial ownership (within the meaning of that term as it is used in Section
13(d) of the Securities Exchange Act of 1934 and the rules and regulations
promulgated thereunder) of twenty-five percent (25%) or more of the outstanding
voting securities of the Savings Bank or the Parent by any person, trust, entity
or group. The term "person" means an individual other than the Executive, or a
corporation, partnership, trust, association, joint venture, pool, syndicate,
sole proprietorship, unincorporated organization or any other form of entity not
specifically listed herein.
(b) Notwithstanding any other provision of this Agreement to the
contrary, Executive may voluntarily terminate his employment during the term of
this Agreement following a Change in Control of the Savings Bank or Parent, or
within twenty-four months following such Change in Control, and Executive shall
thereupon be entitled to receive the payment described in Section 9(a) of this
Agreement, upon the occurrence, or within 120 days thereafter, of any of the
following events, which have not been consented to in advance by the Executive
in writing: (i) if Executive would be required to move his personal residence or
perform his principal executive functions more than thirty-five (35) miles from
the Executive's primary office as of the signing of this Agreement; (ii) if in
the organizational structure of the Savings Bank, Executive would be required to
report to a person or persons other than the President or the Board of Directors
of the Savings Bank; (iii) if the Savings Bank should fail to maintain
Executive's base compensation in effect as of the date of the Change in Control
and the existing employee benefits plans, including material fringe benefit,
stock option and retirement plans; (iv) if Executive would be assigned duties
and responsibilities other than those normally associated with his position as
referenced at Section 1, herein; or (v) if Executive's responsibilities or
authority have in any way been materially diminished or reduced.
6
<PAGE>
10. Withholding. All payments required to be made by the Savings Bank
hereunder to the Executive shall be subject to the withholding of such amounts,
if any, relating to tax and other payroll deductions as the Savings Bank may
reasonably determine should be withheld pursuant to any applicable law or
regulation.
11. Successors and Assigns.
(a) This Agreement shall inure to the benefit of and be binding
upon any corporate or other successor of the Savings Bank or Parent which shall
acquire, directly or indirectly, by merger, consolidation, purchase or
otherwise, all or substantially all of the assets or stock of the Savings Bank
or Parent.
(b) Since the Savings Bank is contracting for the unique and
personal skills of the Executive, the Executive shall be precluded from
assigning or delegating his rights or duties hereunder without first obtaining
the written consent of the Savings Bank.
12. Amendment; Waiver. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing, signed by the Executive and such officer or officers as may be
specifically designated by the Board of Directors of the Savings Bank to sign on
its behalf. No waiver by any party hereto at any time of any breach by any other
party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time.
13. Governing Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the United States
where applicable and otherwise by the substantive laws of the State of New
Jersey.
14. Nature of Obligations. Nothing contained herein shall create or
require the Savings Bank to create a trust of any kind to fund any benefits
which may be payable hereunder, and to the extent that the Executive acquires a
right to receive benefits from the Savings Bank hereunder, such right shall be
no greater than the right of any unsecured general creditor of the Savings Bank.
15. Headings. The section headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
16. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of the other
provisions of this Agreement, which shall remain in full force and effect.
17. Arbitration. Any controversy or claim arising out of or relating to
this Agreement, or the breach thereof, shall be settled by arbitration in
accordance with the rules then in effect of the district office of the American
Arbitration Association ("AAA") nearest to the home office
7
<PAGE>
of the Savings Bank, and judgment upon the award rendered may be entered in any
court having jurisdiction thereof, except to the extent that the parties may
otherwise reach a mutual settlement of such issue. Further, the settlement of
the dispute to be approved by the Board of the Savings Bank may include a
provision for the reimbursement by the Savings Bank to the Executive for all
reasonable costs and expenses, including reasonable attorneys' fees, arising
from such dispute, proceedings or actions, or the Board of the Savings Bank or
the Parent may authorize such reimbursement of such reasonable costs and
expenses by separate action upon a written action and determination of the Board
following settlement of the dispute. Such reimbursement shall be paid within ten
(10) days of Executive furnishing to the Savings Bank or Parent evidence, which
may be in the form, among other things, of a canceled check or receipt, of any
costs or expenses incurred by Executive.
18. Confidential Information. The Executive acknowledges that during his
or her employment he or she will learn and have access to confidential
information regarding the Savings Bank and the Parent and its customers and
businesses ("Confidential Information"). The Executive agrees and covenants not
to disclose or use for his or her own benefit, or the benefit of any other
person or entity, any such Confidential Information, unless or until the Savings
Bank or the Parent consents to such disclosure or use or such information
becomes common knowledge in the industry or is otherwise legally in the public
domain. The Executive shall not knowingly disclose or reveal to any unauthorized
person any Confidential Information relating to the Savings Bank, the Parent, or
any subsidiaries or affiliates, or to any of the businesses operated by them,
and the Executive confirms that such information constitutes the exclusive
property of the Savings Bank and the Parent. The Executive shall not otherwise
knowingly act or conduct himself (a) to the material detriment of the Savings
Bank or the Parent, or its subsidiaries, or affiliates, or (b) in a manner which
is inimical or contrary to the interests of the Savings Bank or the Parent.
Executive acknowledges and agrees that the existence of this Agreement and its
terms and conditions constitutes Confidential Information of the Savings Bank,
and the Executive agrees not to disclose the Agreement or its contents without
the prior written consent of the Savings Bank. Notwithstanding the foregoing,
the Savings Bank reserves the right in its sole discretion to make disclosure of
this Agreement as it deems necessary or appropriate in compliance with its
regulatory reporting requirements. Notwithstanding anything herein to the
contrary, failure by the Executive to comply with the provisions of this Section
may result in the immediate termination of the Agreement within the sole
discretion of the Savings Bank, disciplinary action against the Executive taken
by the Savings Bank, including but not limited to the termination of employment
of the Executive for breach of the Agreement and the provisions of this Section,
and other remedies that may be available in law or in equity.
19. Entire Agreement. This Agreement together with any understanding or
modifications thereof as agreed to in writing by the parties, shall constitute
the entire agreement between the parties hereto.
8
EXHIBIT 10.3
<PAGE>
CHANGE IN CONTROL SEVERANCE AGREEMENT
THIS CHANGE IN CONTROL SEVERANCE AGREEMENT ("Agreement") entered into
this 14th day of May 1998 ("Effective Date"), by and between Peoples Savings
Bank, Bordentown, New Jersey (the "Savings Bank") and Ms. Elaine Denelsbeck (the
"Employee").
WHEREAS, the Employee is currently employed by the Savings Bank as Loan
Servicing Manager and Assistant Secretary and is experienced in certain phases
of the business of the Savings Bank; and
WHEREAS, the parties desire by this writing to set forth the rights and
responsibilities of the Savings Bank and Employee if the Savings Bank should
undergo a change in control (as defined hereinafter in the Agreement) after the
Effective Date.
NOW, THEREFORE, it is AGREED as follows:
1. Employment. The Employee is employed in the capacity as the Loan
Servicing Manager and Assistant Secretary of the Savings Bank. The Employee
shall render such administrative and management services to the Savings Bank and
any to-be-formed parent savings and loan holding company ("Parent") as are
currently rendered and as are customarily performed by persons situated in a
similar executive capacity. The Employee's other duties shall be such as the
Board of Directors for the Savings Bank (the "Board of Directors" or "Board")
may from time to time reasonably direct, including normal duties as an officer
of the Savings Bank and the Parent.
2. Term of Agreement. The term of this Agreement shall be for the
period commencing on the Effective Date and ending 36 months thereafter
("Term"). Additionally, on, or before, each annual anniversary date from the
Effective Date, the Term of this Agreement may be extended for an additional
period beyond the then effective expiration date upon a determination and
resolution of the Board of Directors that the performance of the Employee has
met the requirements and standards of the Board, and that the Term of such
Agreement shall be extended.
3. Termination of Employment in Connection with or Subsequent to
a Change in Control.
(a) Notwithstanding any provision herein to the contrary, in the event
of the involuntary termination of Employee's employment under this Agreement,
absent Just Cause, in connection with, or within twenty-four (24) months after,
any Change in Control of the Savings Bank or Parent, Employee shall be paid an
amount equal to 2.999 times the Employee's "base amount" as defined in Section
280G(b)(3) of the Internal Revenue Code of 1986, as amended (the "Code") and
regulations promulgated thereunder. Said sum shall be paid, at the
1
<PAGE>
option of Employee, either in one (1) lump sum within thirty (30) days of such
termination of service or in periodic payments over the next 36 months. Such
payments shall be in lieu of any other future payments which the Employee would
be otherwise entitled to receive. Notwithstanding the forgoing, all sums payable
hereunder shall be reduced in such manner and to such extent so that no such
payments made hereunder when aggregated with all other payments to be made to
the Employee by the Savings Bank or the Parent shall be deemed an "excess
parachute payment" in accordance with Section 280G of the Internal Revenue Code
of 1986, as amended (the "Code") and be subject to the excise tax provided at
Section 4999(a) of the Code. The term "Change in Control" shall refer to (i) the
control of voting proxies whether related to stockholders or mutual members by
any person, other than the Board of Directors of the Savings Bank, to direct
more than 25% of the outstanding votes of the Savings Bank, the control of the
election of a majority of the Savings Bank's directors, or the exercise of a
controlling influence over the management or policies of the Savings Bank by any
person or by persons acting as a group within the meaning of Section 13(d) of
the Exchange Act, (ii) an event whereby the OTS, FDIC or any other department,
agency or quasi-agency of the federal government cause or bring about, without
the consent of the Savings Bank, a change in the corporate structure or
organization of the Savings Bank; (iii) an event whereby the OTS, FDIC or any
other agency or quasi-agency of the federal government cause or bring about,
without the consent of the Savings Bank, a taxation or involuntary distribution
of retained earnings or proceeds from the sale of securities to depositors,
borrowers, any government agency or organization or civic or charitable
organization; or (iv) a merger or other business combination between the Savings
Bank and another corporate entity whereby the Savings Bank is not the surviving
entity. In the event that the Savings Bank shall convert in the future from
mutual-to-stock form, the term "Change in Control" shall also refer to: (i) the
sale of all, or a material portion, of the assets of the Savings Bank or the
Parent; (ii) the merger or recapitalization of the Savings Bank or the Parent
whereby the Savings Bank or the Parent is not the surviving entity; (iii) a
change in control of the Savings Bank or the Parent, as otherwise defined or
determined by the Office of Thrift Supervision or regulations promulgated by it;
or (iv) the acquisition, directly or indirectly, of the beneficial ownership
(within the meaning of that term as it is used in Section 13(d) of the
Securities Exchange Act of 1934 and the rules and regulations promulgated
thereunder) of twenty-five percent (25%) or more of the outstanding voting
securities of the Savings Bank or the Parent by any person, trust, entity or
group. The term "person" means an individual other than the Employee, or a
corporation, partnership, trust, association, joint venture, pool, syndicate,
sole proprietorship, unincorporated organization or any other form of entity not
specifically listed herein.
(b) Notwithstanding any other provision of this Agreement to the
contrary except as provided at Sections 4 and 5, Employee may voluntarily
terminate his employment under this Agreement within twenty-four months
following a Change in Control of the Savings Bank or Parent, and Employee shall
thereupon be entitled to receive the payment and benefits described in Section
3(a) of this Agreement, upon the occurrence, or within ninety (90) days
thereafter, of any of the following events, which have not been consented to in
advance by the Employee in writing: (i) if Employee would be required to move
his personal residence or perform his principal executive functions more than
thirty-five (35) miles from the Employee's primary
2
<PAGE>
office as of the signing of this Agreement; (ii) if in the organizational
structure of the Savings Bank or Parent, Employee would be required to report to
a person or persons other than the President or the Board of the Savings Bank or
Parent; (iii) if the Savings Bank or Parent should fail to maintain the
Employee's base compensation in effect as of the date of the Change in Control
and existing employee benefits plans, including material fringe benefit, stock
option and retirement plans, except to the extent that such reduction in benefit
programs is part of an overall adjustment in benefits for all employees of the
Savings Bank or Parent and does not disproportionately adversely impact the
Employee; (iv) if Employee would be assigned duties and responsibilities other
than those normally associated with his position as referenced at Section 1,
herein; or (v) if Employee's responsibilities or authority have in any way been
materially diminished or reduced.
4. Other Changes in Employment Status.
Except as provided for at Section 3, herein, the Board of Directors may
terminate the Employee's employment at any time with or without Just Cause
within its sole discretion. This Agreement shall not be deemed to give Employee
any right to be retained in the employment or service of the Bank, or to
interfere with the right of the Bank to terminate the employment of the Employee
at any time. The Employee shall have no right to receive compensation or other
benefits for any period after termination for Just Cause. Termination for "Just
Cause" shall include termination because of the Employee's personal dishonesty,
incompetence, willful misconduct, breach of fiduciary duty involving personal
profit, intentional failure to perform stated duties, willful violation of any
law, rule or regulation (other than traffic violations or similar offenses) or
final cease-and-desist order, or material breach of any provision of the
Agreement.
5. Regulatory Exclusions.
(a) If the Employee is removed and/or permanently prohibited from
participating in the conduct of the Savings Bank's affairs by an order issued
under Sections 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act ("FDIA")
(12 U.S.C. 1818(e)(4) and (g)(1)), all obligations of the Savings Bank under
this Agreement shall terminate, as of the effective date of the order, but the
vested rights of the parties shall not be affected.
(b) If the Savings Bank is in default (as defined in Section 3(x)(1) of
FDIA) all obligations under this Agreement shall terminate as of the date of
default, but this paragraph shall not affect any vested rights of the
contracting parties.
(c) All obligations under this Agreement shall be terminated, except to
the extent determined that continuation of this Agreement is necessary for the
continued operation of the Savings Bank: (i) by the Director of the Office of
Thrift Supervision ("Director of OTS"), or his or her designee, at the time that
the Federal Deposit Insurance Corporation ("FDIC") enters into an agreement to
provide assistance to or on behalf of the Savings Bank under the authority
contained in Section 13(c) of FDIA; or (ii) by the Director of the OTS, or his
or her designee,
3
<PAGE>
at the time that the Director of the OTS, or his or her designee approves a
supervisory merger to resolve problems related to operation of the Savings Bank
or when the Savings Bank is determined by the Director of the OTS to be in an
unsafe or unsound condition. Any rights of the parties that have already vested,
however, shall not be affected by such action.
(d) If the Employee is suspended and/or temporarily prohibited from
participating in the conduct of the Savings Bank's affairs by a notice served
under Section 8(e)(3) or (g)(1) of the FDIA (12 U.S.C. 1818(e)(3) and (g)(1)),
the Savings Bank's obligations under the Agreement shall be suspended as of the
date of service, unless stayed by appropriate proceedings. If the charges in the
notice are dismissed, the Savings Bank may within its discretion (i) pay the
Employee all or part of the compensation withheld while its contract obligations
were suspended and (ii) reinstate any of its obligations which were suspended.
(e) Notwithstanding anything herein to the contrary, any payments made
to the Employee pursuant to the Agreement, or otherwise, shall be subject to and
conditioned upon compliance with 12 USC ss.1828(k) and any regulations
promulgated thereunder.
6. Successors and Assigns.
(a) This Agreement shall inure to the benefit of and be binding upon
any corporate or other successor of the Savings Bank which shall acquire,
directly or indirectly, by merger, consolidation, purchase or otherwise, all or
substantially all of the assets or stock of the Savings Bank or Parent.
(b) The Employee shall be precluded from assigning or delegating his
rights or duties hereunder without first obtaining the written consent of the
Savings Bank.
7. Amendments. No amendments or additions to this Agreement shall be
binding upon the parties hereto unless made in writing and signed by both
parties, except as herein otherwise specifically provided.
8. Applicable Law. This agreement shall be governed by all respects
whether as to validity, construction, capacity, performance or otherwise, by the
laws of the State of New Jersey, except to the extent that Federal law shall be
deemed to apply.
9. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
10. Arbitration. Any controversy or claim arising out of or relating to
this Agreement, or the breach thereof, shall be settled by arbitration in
accordance with the rules then in effect of the district office of the American
Arbitration Association ("AAA") nearest to the home office of the Bank, and
judgment upon the award rendered may be entered in any court
4
<PAGE>
having jurisdiction thereof, except to the extent that the parties may otherwise
reach a mutual settlement of such issue. Further, the settlement of the dispute
to be approved by the Board of the Bank may include a provision for the
reimbursement by the Bank to the Employee for all reasonable costs and expenses,
including reasonable attorneys' fees, arising from such dispute, proceedings or
actions, or the Board of the Bank or the Parent may authorize such reimbursement
of such reasonable costs and expenses by separate action upon a written action
and determination of the Board following settlement of the dispute. Such
reimbursement shall be paid within ten (10) days of Employee furnishing to the
Bank or Parent evidence, which may be in the form, among other things, of a
canceled check or receipt, of any costs or expenses incurred by Employee.
11. Confidential Information. The Employee acknowledges that during his
or her employment he or she will learn and have access to confidential
information regarding the Savings Bank and the Parent and its customers and
businesses ("Confidential Information"). The Employee agrees and covenants not
to disclose or use for his or her own benefit, or the benefit of any other
person or entity, any such Confidential Information, unless or until the Savings
Bank or tthe Parent consents to such disclosure or use or such information
becomes common knowledge in the industry or is otherwise legally in the public
domain. The Employee shall not knowingly disclose or reveal to any unauthorized
person any Confidential Information relating to the Savings Bank, the Parent, or
any subsidiaries or affiliates, or to any of the businesses operated by them,
and the Employee confirms that such information constitutes the exclusive
property of the Savings Bank and the Parent. The Employee shall not otherwise
knowingly act or conduct himself (a) to the material detriment of the Savings
Bank or the Parent, or its subsidiaries, or affiliates, or (b) in a manner which
is inimical or contrary to the interests of the Savings Bank or the Parent.
Employee acknowledges and agrees that the existence of this Agreement and its
terms and conditions constitutes Confidential Information of the Savings Bank,
and the Employee agrees not to disclose the Agreement or its contents without
the prior written consent of the Savings Bank. Notwithstanding the foregoing,
the Savings Bank reserves the right in its sole discretion to make disclosure of
this Agreement as it deems necessary or appropriate in compliance with its
regulatory reporting requirements. Notwithstanding anything herein to the
contrary, failure by the Employee to comply with the provisions of this Section
may result in the immediate termination of the Agreement within the sole
discretion of the Savings Bank, disciplinary action against the Employee taken
by the Savings Bank, including but not limited to the termination of employment
of the Employee for breach of the Agreement and the provisions of this Section,
and other remedies that may be available in law or in equity.
12. Entire Agreement. This Agreement together with any understanding or
modifications thereof as agreed to in writing by the parties, shall constitute
the entire agreement between the parties hereto.
5
EXHIBIT 23.2
<PAGE>
LEWIS W. PARKER, III
CERTIFIED PUBLIC ACCOUNTANT
- ------------------------------
P.O. BOX 6510, 9L PRINCESS ROAD
LAWRENCEVILLE, N.J. 08648
TEL.: 609-896-2177
FAX: 609-844-0133
ACCOUNTANT'S CONSENT
Board of Directors
Peoples Saving Bank
I consent to the use in this Registration Statement of Peoples Saving Bank
Corporation Form SB-2 and the Application for Conversion on Form AC of my report
dated October 29, 1997, in the financial statements of Peoples Savings Bank and
as of September 30, 1997 and 1996, and for the fiscal years then ended, and to
the reference to my firm under the heading "Experts" in the related prospectus.
/s/Lewis W. Parker
------------------
Lawrenceville, New Jersey
June 12, 1998
EXHIBIT 23.3
<PAGE>
FINPRO [LOGO] 26 Church Street - P.O. Box 323
Liberty Corner, NJ 07938
(908) 604-9336 - (908) 604-5951 (FAX)
[email protected] - www.finpronj.com
- --------------------------------------------------------------------------------
June 12, 1998
Board of Directors
Peoples Savings Bank
789 Farnsworth Avenue
Bordentown, New Jersey 08505
Dear Board Members:
We hereby consent to the use of our firm's name, FinPro, Inc. ("FinPro") in the
Form AC Application for Conversion of Peoples Savings Bank, Bordentown, New
Jersey, and any amendments thereto, in the Form SB-2 Registration Statement of
Farnsworth Bancorp, Inc. and any amendments thereto, and in the Application
H-(e)l-S for Farnsworth Bancorp, Inc.. We also hereby consent to the use of our
firm's name and the inclusion of, summary of, and references to our Appraisal
Report and our opinion concerning subscription rights in such filings including
the Prospectus of Farnsworth Bancorp, Inc..
Very Truly Yours,
/s/Kenneth G. Emerson, CPA
--------------------------------------------
Kenneth G. Emerson, CPA
Liberty Corner, New Jersey
June 12, 1998
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION DERIVED FROM THE
FINANCIAL STATEMENTS IN THE PROSPECTUS WHICH FORMS PART OF FORM SB-2 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL INFORMATION.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 6-MOS
<FISCAL-YEAR-END> SEP-30-1997 SEP-30-1998
<PERIOD-END> SEP-30-1997 MAR-31-1998
<CASH> 1,282 475
<INT-BEARING-DEPOSITS> 1,082 2,450
<FED-FUNDS-SOLD> 0 0
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 96 128
<INVESTMENTS-CARRYING> 2,758 2,540
<INVESTMENTS-MARKET> 3,016 2,724
<LOANS> 26,474 28,405
<ALLOWANCE> 66 125
<TOTAL-ASSETS> 37,619 38,685
<DEPOSITS> 35,196 36,088
<SHORT-TERM> 0 0
<LIABILITIES-OTHER> 333 372
<LONG-TERM> 0 0
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 2,088 2,225
<TOTAL-LIABILITIES-AND-EQUITY> 37,619 38,685
<INTEREST-LOAN> 2,034 1,106
<INTEREST-INVEST> 424 136
<INTEREST-OTHER> 177 91
<INTEREST-TOTAL> 2,635 1,333
<INTEREST-DEPOSIT> 1,328 676
<INTEREST-EXPENSE> 1,409 1
<INTEREST-INCOME-NET> 1,226 656
<LOAN-LOSSES> 8 59
<SECURITIES-GAINS> 7 1
<EXPENSE-OTHER> 1,106 578
<INCOME-PRETAX> 273 152
<INCOME-PRE-EXTRAORDINARY> 192 38
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 192 114
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
<YIELD-ACTUAL> 7.34 3.66
<LOANS-NON> 199 266
<LOANS-PAST> 0 65
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 58 66
<CHARGE-OFFS> 0 0
<RECOVERIES> 0 0
<ALLOWANCE-CLOSE> 66 125
<ALLOWANCE-DOMESTIC> 66 125
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 0 0
</TABLE>
EXHIBIT 99.1
<PAGE>
<TABLE>
<CAPTION>
FARNSWORTH BANCORP, INC.
STOCK ORDER FORM
Please read and complete this Stock Order Form.
Instructions are included on the reverse side of this form.
<S> <C>
DEADLINE FOR DELIVERY FOR OFFICE USE ONLY
- -------------------------------------------------------------------------- ----------------------------------------------------
12:00 noon, Eastern time, on ______, 1998
Please mail the completed Stock Order Form in the enclosed business reply ---------- ------- ------- -------
envelope to the address listed below or hand-deliver to either Peoples Date Rec'd Batch # Order # Deposit
Savings Bank office. Copies and facsimiles of Stock Order Forms will not
be accepted.
- -------------------------------------------------------------------------- ----------------------------------------------------
(1) NUMBER OF SHARES
- ------------------------------- -------------------------------- -------------------------------------------------
Number of Shares Price per Share Total Amount Due
---------------- --------------- ----------------
X $10.00 = $
------------------------------- -------------------------------- ------------------------------------------------
(25 Share Minimum)
(2) METHOD OF PAYMENT (3) PURCHASER INFORMATION
- ---------------------------------------------------------------------------- ----------------------------------------------------
[_] Enclosed is a check or money order payable to Peoples Savings Bank Check the box which applies.
for $______________. (a)|_| Eligible Account Holder - Check here if
you were a depositor with at least $50 at Peoples
[_] I authorize Peoples Savings Bank to make the withdrawal(s) from the Savings Bank on December 31, 1996. List any
Peoples Savings Bank account(s) listed below, and understand that the account(s) you had at that date below.
amounts I authorize below will not otherwise be available to me once (b) |_| Supplemental Eligible Account Holder -
this Stock Order Form is submitted. (There is no early withdrawal Check here if you were a depositor with at least $50
penalty for the purchase of stock.) at Peoples Savings Bank on June 30, 1998, but are
not an Eligible Account Holder. List any account(s)
you had at that date below.
Account Number(s) Amount(s) (c) |_| Other Member - Check here if you were a
depositor of Peoples Federal Savings Bank on _____,
- ----------------------------------------------------------------------------- 1998 or borrower at Peoples Savings Bank as of
December 2, 1996 who continued to be a borrower as
- ----------------------------------------------------------------------------- of _____, 1998, but are not an Eligible or
Supplemental Eligible Account Holder. List any
- ----------------------------------------------------------------------------- account(s) you had at that date below.
(d) |_| Check here if you were not a Peoples
- ----------------------------------------------------------------------------- Savings Bank account holder or borrower at any of
the above dates.
- ----------------------------------------------------------------------------- Account Title (Name(s) on Account) Account Number
Total Withdrawal: ---------------------------------- --------------
- -----------------------------------------------------------------------------
------------------------------------ --------------
------------------------------------ --------------
------------------------------------ --------------
------------------------------------ --------------
If additional space is needed, please attach a
separate page and submit it with this Stock Order
Form.
</TABLE>
<TABLE>
<CAPTION>
(4) STOCK REGISTRATION (Please Print Clearly - The registration information you list below will be utilized for subsequent
mailings, including the registration of stock certificates. Please make sure the information is complete and legible.)
<S> <C>
- ------------------------------------------------------------------- ----------------------------------------------------------------
(First Name, Middle Initial, Last Name) Social Security No./Tax ID# (certificate will show this number)
- ------------------------------------------------------------------- ----------------------------------------------------------------
(First Name, Middle Initial, Last Name) Social Security No./Tax ID#
- ------------------------------------------------------------------- ----------------------------------------------------------------
(Street Address) (Daytime Phone Number)
- ------------------------------------------------------------------- ----------------------------------------------------------------
(City, State, Zip Code) (Evening Phone Number)
- ------------------------------------------------------------------- ----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
(5) FORM OF STOCK OWNERSHIP (check one - see reverse side of this Form for ownership definitions)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
|_| Individual |_| Joint Tenants |_| Tenants in Common |_| Uniform Transfer to Minors
|_| IRA (for broker use only) |_| Corporation |_| Fiduciary (Under Agreement Dated___, 199__) |_| Other ______________
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
(6) NASD AFFILIATION (Check and initial only if applicable.)
- ------------------------------------------------------------------------------------------------------------------------------------
|_| Check here and initial below if you are a member of the NASD ("National Association of Securities Dealers") or a person
associated with an NASD member or a member of the immediate family of any such person to whose support such person contributes,
directly or indirectly, or if you have an account in which an NASD member, or person associated with an NASD member, has a
beneficial interest. I agree (i) not to sell, transfer or hypothecate the stock for a period of 90 days following issuance; and
(ii) to report this subscription in writing to the applicable NASD member I am associated with within one day of payment for the
stock.
____ (Please initial)
- ------------------------------------------------------------------------------------------------------------------------------------
(7) ACKNOWLEDGMENT AND SIGNATURE (VERY IMPORTANT)
- ------------------------------------------------------------------------------------------------------------------------------------
I(we) acknowledge receipt of the Prospectus dated _________, 1998, and that I(we) have been advised to read the Prospectus
(including the section entitled "Risk Factors"). I(we) understand that, after receipt by Peoples Savings Bank, this order may not
be modified or withdrawn without the consent of Peoples Savings. I(we) hereby certify that the shares which are being subscribed
for are for my(our) account only, and that I(we) have no present agreement or understanding regarding any subsequent sale or
transfer of such shares and I(we) confirm that my(our) order does not conflict with the purchase limitation and ownership
limitation provisions in the Plan of Conversion and Stock Issuance Plan. I(we) acknowledge that the common stock being ordered is
not a deposit or savings account, is not insured by the FDIC and is not guaranteed by Peoples Savings Bank, or any government
agency. Under penalties of perjury, I(we) certify that (1) the Social Security #(s) or Tax ID#(s) given above is(are) correct;
and (2) I(we) am(are) not subject to backup withholding tax. (You must cross out #2 above if you have been notified by the
Internal Revenue Service that you are subject to backup withholding because of underreporting interest or dividends on your tax
return).
Please sign and date this form. Only one signature is required, unless authorizing a withdrawal from a Peoples Savings Bank
deposit account requiring more than one signature to withdraw funds. If signing as a custodian, corporate officer, etc., please
include your full title.
- ------------------------------------------------------ ---------------------------------------------------------------------
Signature Title (if applicable) Date Signature Title (if applicable) Date
THIS ORDER NOT VALID UNLESS SIGNED - WE RECOMMEND RETAINING A COPY OF THIS FORM FOR YOUR RECORDS
- ------------------------------------------------------------------------------------------------
QUESTIONS? Please call (609) ___-____ from 9:00 am to 4:00 pm, Monday-Friday
Stock Information Center: 789 Farnsworth Avenue, Bordentown, New Jersey 08505
- ------------------------------------------------------------------------------------------------------------------------------------
THE SHARES OF COMMON STOCK ARE NOT DEPOSIT ACCOUNTS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
</TABLE>
<PAGE>
STOCK ORDER FORM INSTRUCTIONS
-----------------------------
<TABLE>
<CAPTION>
<S> <C>
(1) NUMBER OF SHARES -- Indicate the number of shares of Farnsworth Bancorp, Inc. common stock that you wish to purchase and
indicate the amount due. The minimum purchase is 25 shares or $250. No individual person may purchase more than $60,000 in the
Offering. No person, together with associates or persons acting in concert with such person, may purchase more than $60,000 in
the Offering. Peoples Savings Bank reserves the right to accept or reject orders placed in the Community Offering, if any.
(2) METHOD OF PAYMENT -- Payment for shares may be made by check or money order payable to Peoples Savings Bank. Funds received
in this form of payment will be cashed immediately and deposited into a separate account established for the purposes of this
Offering. You will earn interest at Peoples Savings Bank's annual passbook rate (currently ___%) from the time funds are received
until the Offering is consummated.
You may pay for your shares by withdrawal from your Peoples Savings Bank deposit account(s). Indicate the account number(s) and
the amount(s) to be withdrawn. These funds will be unavailable to you from the time this Stock Order Form is received until the
Offering is consummated. The funds will continue to earn interest at the account's contractual rate until the Offering is
consummated. Please contact the Stock Information Center early in the Offering period, if you are intending to utilize Peoples
Savings Bank IRA funds (or any other IRA funds) to make your stock purchase.
(3) PURCHASER INFORMATION -- Check the applicable box. This information is very important because eligibility dates are utilized
to prioritize your order in the event that we receive more stock orders than available stock. List the name(s) on the deposit
account(s) and account number(s) that you held at the applicable date. Please see the portion of the Prospectus entitled "The
Reorganization and Offering - Subscription Offering and Subscription Rights" for a detailed explanation of how shares will be
allocated in the event the Offering is oversubscribed. Failure to complete this section, completing this section incorrectly or
omitting information in this section could result in a loss of all or part of your stock allocation.
(4) STOCK REGISTRATION -- Please CLEARLY PRINT the name(s) and address in which you want the stock certificate registered and
mailed. If you are exercising subscription rights by purchasing in the Subscription Offering as a Peoples Savings Bank (i)
eligible depositor as of 12/31/96 or (ii) eligible depositor as of 6/30/98, or (iii) other depositor as of __/__/98, or borrower
with a loan outstanding as of December 2, 1996, whose loan continued to be outstanding as of __/__/98, you must register the stock
in the name of one of the account holders listed on your account as of the applicable date. However, adding the name(s) of other
persons who are not account holders, or were account holders at a later date than yourself, will be a violation of your
subscription right and will result in a loss of your purchase priority. NOTE: ONE STOCK CERTIFICATE WILL BE GENERATED PER ORDER
FORM. IF VARIOUS REGISTRATIONS AND SHARE AMOUNTS ARE DESIRED ON VARIOUS CERTIFICATES, A SEPARATE STOCK ORDER FORM MUST BE
COMPLETED FOR EACH CERTIFICATE DESIRED.
Enter the Social Security Number or Tax ID Number of the registered owner(s). The first number listed will be identified with the
stock certificate for tax purposes.
Be sure to include at least one phone number, in the event you must be contacted regarding this Stock Order Form.
(5) FORM OF STOCK OWNERSHIP -- Please check the one type of ownership applicable to your registration. An explanation of each
follows:
GUIDELINES FOR REGISTERING STOCK
--------------------------------
For reasons of clarity and standardization, the stock transfer industry has developed uniform stockholder registrations
which we will utilize in the issuance of your Farnsworth Bancorp, Inc. stock certificate(s). If you have any questions, please
consult your legal advisor.
Stock ownership must be registered in one of the following manners:
- ---------------------------------------------------
INDIVIDUAL: Avoid the use of two initials. Include the first given name, middle initial and last name of the
stockholder. Omit words of limitation that do not affect ownership rights such as "special account,"
"single man," "personal property," etc. If the stock is held individually upon the individual's death,
the stock will be owned by the individual's estate and distributed as indicated by the individual's will
or otherwise in accordance with law.
- ---------------------------------------------------
JOINT: Joint ownership of stock by two or more persons shall be inscribed on the certificate with one of the
following types of joint ownership. Names should be joined by "and"; do not connect with "or." Omit
titles such as "Mrs.," "Dr.," etc.
JOINT TENANTS--Joint Tenancy with Right of Survivorship and not as Tenants in Common may be specified to
identify two or more owners where ownership is intended to pass automatically to the surviving tenant(s).
TENANTS IN COMMON--Tenants in Common may be specified to identify two or more owners. When stock is
held as tenancy in common, upon the death of one co-tenant, ownership of the stock will be held by the
surviving co-tenant(s) and by the heirs of the deceased co-tenant. All parties must agree to the
transfer or sale of shares held in this form of ownership.
- ----------------------------------------------------
UNIFORM TRANSFER Stock may be held in the name of a custodian for a minor under the Uniform Transfers to Minors laws of
TO MINORS: the individual states. There may be only one custodian and one minor designated on a stock certificate.
The standard abbreviation of custodian is "CUST,", while the description "Uniform Transfers to Minors
Act" is abbreviated: "UNIF TRAN MIN ACT." Standard U.S. Postal Service state abbreviations should be
used to describe the appropriate state. For example, stock held by John P. Jones under the Uniform
Transfers to Minors Act will be abbreviated:
JOHN P. JONES CUST SUSAN A. JONES
UNIF TRAN MIN ACT NJ
- -----------------------------------------------------
FIDUCIARIES: Stock held in a fiduciary capacity must contain the following:
1. The name(s) of the fiduciary(ies):
o If an individual, list the first given name, middle initial and last name.
o If a corporation, list the corporate title
o If an individual and a corporation, list the corporation's title before the individual.
2. The fiduciary capacity: Adminstrator, Concervator, Committee, Executor, Trustee, Personal
Representative, Custodian
3. The type of document governing the fiduciary relationship. Generally, such relationships are
either under a form of living trust agreement or pursuant to a court order. Without a document
establishing a fiduciary relationship, your stock may not be registered in a fiduciary capacity.
4. The date of the document governing the relationship. The date of the document need not be used
in the description of a trust created by a will.
5. Either of the following:
The name of the maker, donor or testator OR
The name of the beneficiary
Example of Fiduciary Ownership:
JOHN D. SMITH, TRUSTEE FOR TOM A. SMITH
UNDER AGREEMENT DATED 6/9/74
(6) NASD AFFILIATION -- Check the box and initial, if applicable.
(7) ACKNOWLEDGMENT AND SIGNATURE -- Stock order forms submitted without a signature will not be accepted. Only one signature is
required, unless the method of payment section of this Form includes authorization to withdraw from a Peoples Savings Bank
account requiring more than one signature. If signing as a custodian, trustee, corporate officer, etc., please include your
title. If exercising a Power of Attorney, you must submit a copy of the POA agreement with this Form.
</TABLE>
EXHIBIT 99.2
<PAGE>
- --------------------------------------------------------------------------------
PEOPLES SAVINGS BANK
Marketing Materials
DRAFT DATED 6/8/98
- --------------------------------------------------------------------------------
<PAGE>
PEOPLES SAVINGS BANK
TABLE OF CONTENTS
-----------------
CORRESPONDENCE
- --------------
Letter to Members Eligible to Vote
Letters to Depositors Not Entitled to Vote (Closed - Accounts)
Letter to Potential Investors
"Blue Sky" Member Letter
Ryan, Beck "Broker-Dealer" Letter
Stockgram
Proxygram
Stock Order Acknowledgment Card
Stock Certificate Mailing Letter
ADVERTISEMENTS
- --------------
Lobby Poster
PRESS RELEASES
- --------------
Press Release - Offering Commences
Press Release - Offering Completed
BROCHURES
- ---------
Q&A About the Conversion
FORMS
- -----
Stock Order Form
<PAGE>
LETTER TO MEMBERS ELIGIBLE TO VOTE
[Peoples Savings Letterhead]
________, 1998
Dear Customer:
I am pleased to inform you that the Board of Directors has unanimously approved
a Plan of Conversion whereby Peoples Savings Bank ("Peoples Savings" or the
"Savings Bank") will convert from a federally-chartered mutual savings bank to a
federally-chartered stock savings bank. As part of the conversion process, the
Savings Bank will become a wholly-owned subsidiary of Farnsworth Bancorp, Inc.,
which is a recently organized New Jersey corporation.
Enclosed are a Prospectus, Stock Order Form, and Question and Answer Brochure.
You may purchase common stock in the Conversion without paying a commission or
fee. Your completed Stock Order Form, along with full payment or authorization
to withdraw funds from your Peoples Federal deposit account(s), must be received
at either of our offices by 12:00 noon Eastern Time on _________, 1998.
Please remember:
o YOUR DEPOSIT ACCOUNTS AT THE SAVINGS BANK WILL CONTINUE TO BE INSURED TO
THE MAXIMUM EXTENT ALLOWED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION.
o THERE WILL BE NO CHANGE IN THE TERMS OF YOUR ACCOUNTS OR LOANS.
o DEPOSITORS WILL ENJOY THE SAME SERVICES IN OUR OFFICES WITH THE SAME STAFF.
o YOUR VOTE IN FAVOR OF CONVERSION DOES NOT OBLIGATE YOU TO BUY STOCK.
o YOU HAVE A RIGHT TO BUY STOCK BEFORE STOCK IS OFFERED TO THE GENERAL PUBLIC
SUBJECT TO THE PURCHASE PRIORITY ALLOCATIONS SET FORTH IN THE PLAN OF
CONVERSION.
Interest at the Savings Bank's stated rate on passbook accounts will be paid on
all subscription funds received until completion or termination of the
Conversion.
<PAGE>
LETTER TO MEMBERS ELIGIBLE TO VOTE
Page 2
Authorized withdrawals from existing accounts will continue to earn interest at
the contractual rate until the completion of the Conversion. You may purchase
the common stock by a withdrawal from your savings or certificate account
without the penalty for early withdrawals. Please call the Stock Information
Center early in the Conversion period if you wish to purchase common stock using
IRA funds because IRA-related procedures require additional processing time.
The Office of Thrift Supervision has approved the Plan of Conversion subject to
a favorable vote of our members. Also enclosed you will find a Proxy Statement,
Proxy Card(s) and a reply envelope. Management urges that you vote "FOR" the
Plan of Conversion after reviewing the Proxy Statement. Please sign the enclosed
Proxy Card(s) and return them to any Peoples Savings office or mail them
immediately in the enclosed reply envelope. Should you choose to attend the
Special Meeting of Members and vote in person, you may do so by revoking your
previously executed proxy.
If you have any questions, please call the Stock Information Center at (609)
___-____, from 9:00 a.m. - 4:00 p.m., Monday through Friday.
We hope that you will take advantage of this opportunity to join us as a charter
stockholder of Farnsworth Bancorp, Inc.
Sincerely,
Gary N. Pelehaty
President and Chief Executive Officer
This letter is neither an offer to sell nor a solicitation of an offer to buy
common stock. The offer is made only by the Prospectus. The shares of common
stock offered in the Conversion are not accounts or deposits and are not
federally insured or guaranteed. The common stock has not been approved or
disapproved by the Securities and Exchange Commission, the Federal Deposit
Insurance Corporation, the Office of Thrift Supervision or any other government
agency.
Stock Information Center
Peoples Savings Bank
789 Farnsworth Avenue
Bordentown, NJ 08505
(609) ___-____
<PAGE>
LETTER TO DEPOSITORS - CLOSED ACCOUNTS [Peoples Savings Letterhead]
__________, 1998
Dear Sir/Madam:
I am pleased to inform you that the Board of Directors has unanimously approved
a Plan of Conversion whereby Peoples Savings Bank ("Peoples Savings" or the
"Savings Bank") will convert from a federally-chartered mutual savings bank to a
federally-chartered stock savings bank. As part of the conversion process, the
Savings Bank will become a wholly-owned subsidiary of Farnsworth Bancorp, Inc.,
which is a recently organized New Jersey corporation.
Enclosed are a Prospectus, Stock Order Form, and Question and Answer Brochure.
As a depositor of Peoples Savings on December 31, 1996 you have a priority to
purchase Farnsworth Bancorp, Inc. common stock in the Conversion before it is
offered to the general public and without paying a commission or fee subject to
the purchase priority allocations set forth in the Plan of Conversion. Your
completed Stock Order Form, along with full payment, must be received at any of
our offices by 12:00 noon, Eastern Time on ________, 1998.
Interest at the Savings Bank's stated rate on passbook accounts will be paid on
all subscription funds received until completion or termination of the
Conversion.
If you have any questions, please call the Stock Information Center at (609)
___-____, from 9:00 a.m. - 4:00 p.m., Monday through Friday.
We hope that you will take advantage of this opportunity to join us as a charter
stockholder of Farnsworth Bancorp, Inc.
Sincerely,
Gary N. Pelehaty
President and Chief Executive Officer
This letter is neither an offer to sell nor a solicitation of an offer to buy
common stock. The offer is made only by the Prospectus. The shares of common
stock offered in the Conversion are not accounts or deposits and are not
federally insured or guaranteed. The common stock has not been approved or
disapproved by the Securities and Exchange Commission, the Federal Deposit
Insurance Corporation, the Office of Thrift Supervision or any other government
agency.
Stock Information Center
Peoples Savings Bank
789 Farnsworth Avenue
Bordentown, NJ 08505
(609) ___-____
<PAGE>
LETTER TO POTENTIAL INVESTORS
[Peoples Savings Letterhead]
__________, 1998
Dear Potential Investor:
I am pleased to inform you that the Board of Directors has unanimously approved
a Plan of Conversion whereby Peoples Savings Bank ("Peoples Savings" or the
"Savings Bank") will convert from a federally-chartered mutual savings bank to a
federally-chartered stock savings bank. As part of the conversion process, the
Savings Bank will become a wholly-owned subsidiary of Farnsworth Bancorp, Inc.,
which is a recently organized New Jersey corporation.
In connection with the Conversion, Farnsworth Bancorp, Inc. is offering up to
477,250 shares of common stock (subject to a possible increase to 548,838 shares
of common stock) at $10.00 per share through a Subscription and Community
Offering. The stock is being offered to qualifying depositors and other members
of the Savings Bank along with the employee stock ownership plan of the Savings
Bank in a Subscription Offering and, if available, to certain members of the
general public in a Community Offering.
Enclosed are a Prospectus, Stock Order Form, reply envelope, and Question and
Answer Brochure. If you are interested in purchasing shares of common stock, you
may do so during the Subscription, Community or Public Offering without paying a
commission or fee. Your completed Stock Order Form, along with full payment,
must be received at any of our offices by 12:00 noon, Eastern Time, on
_________, 1998.
Interest at the Savings Bank's stated rate paid on passbook accounts will be
paid on all subscription funds received until completion or termination of the
Conversion.
If you have any questions, please call the Stock Information Center at (609)
___-____, from 9:00 a.m. - 4:00 p.m., Monday through Friday.
We hope that you will take advantage of this opportunity to join us as a charter
stockholder of Farnsworth Bancorp, Inc.
Sincerely,
Gary N. Pelehaty
President and Chief Executive Officer
<PAGE>
LETTER TO POTENTIAL INVESTORS
Page 2
This letter is neither an offer to sell nor a solicitation of an offer to buy
common stock. The offer is made only by the Prospectus. The shares of common
stock offered in the Conversion are not accounts or deposits and are not
federally insured or guaranteed. The common stock has not been approved or
disapproved by the Securities and Exchange Commission, the Federal Deposit
Insurance Corporation, the Office of Thrift Supervision or any other government
agency.
Stock Information Center
Peoples Savings Bank
789 Farnsworth Avenue
Bordentown, NJ 08505
(609) ___-____
<PAGE>
"BLUE SKY" MEMBER LETTER
[Peoples Savings Letterhead]
________, 1998
Dear Member:
I am pleased to inform you that the Board of Directors has unanimously approved
a Plan of Conversion whereby Peoples Savings Bank ("Peoples Federal" or the
"Savings Bank") will convert from a federally-chartered mutual savings bank to a
federally-chartered stock savings bank. As part of the conversion process, the
Savings Bank will become a wholly-owned subsidiary of Farnsworth Bancorp, Inc.,
which is a recently organized New Jersey corporation.
The Office of Thrift Supervision has approved the Plan of Conversion subject to
a favorable vote of our members. Please read the enclosed Proxy Statement, vote
and sign the enclosed Proxy Card(s) and mail them to us in the enclosed reply
envelope. The Board of Directors urges you to vote "FOR" the Plan of Conversion.
We must receive the card(s) prior to ____ a.m./p.m., Eastern Time, on ________,
1998.
Although you may vote on the Savings Bank's Plan of Conversion, Farnsworth
Bancorp, Inc. is unfortunately unable to offer or sell its common stock to you
because the small number of members in your state makes registration or
qualification under your state securities laws impractical. Accordingly, this
letter, the enclosed Proxy Statement, and the enclosed Prospectus should not be
considered an offer to sell nor a solicitation of an offer to buy the common
stock. The Prospectus is referred to in the Proxy Statement for a more detailed
explanation of the conversion process and is enclosed with this letter solely to
provide such explanation and not as an offer to sell nor a solicitation of an
offer to buy the common stock described in the Prospectus.
If you have any questions about your voting rights or the Conversion, please
call our Stock Information Center at (609) ___-____, from 9:00 a.m. to 4:00
p.m., Monday through Friday.
Sincerely,
Gary N. Pelehaty
President and Chief Executive Officer
<PAGE>
"BLUE SKY" MEMBER LETTER
Page 2
This letter is neither an offer to sell nor a solicitation of an offer to buy
common stock. The offer is made only by the Prospectus, however, neither an
offer to sell nor a solicitation of an offer to buy is being made with the
enclosed Prospectus. The shares of common stock offered in the Conversion are
not accounts or deposits and are not federally insured or guaranteed. The common
stock has not been approved or disapproved by the Securities and Exchange
Commission, the Federal Deposit Insurance Corporation, the Office of Thrift
Supervision or any other government agency.
Stock Information Center
Peoples Savings Bank
789 Farnsworth Avenue
Bordentown, NJ 08505
(609) ___-____
<PAGE>
RYAN, BECK "BROKER-DEALER" LETTER
[Ryan, Beck Letterhead]
_________, 1998
Dear Potential Investor:
At the request of Farnsworth Bancorp, Inc., we are enclosing materials regarding
the conversion of Peoples Savings Bank from a federally-chartered mutual savings
bank to a federally-chartered stock savings bank. The materials include the
Prospectus and a Question and Answer Brochure describing the Conversion and
Farnsworth Bancorp, Inc.'s common stock offering.
We have been asked to forward these materials to you in view of certain
regulatory requirements and securities laws.
Sincerely,
Ryan, Beck & Co.
This letter is neither an offer to sell nor a solicitation of an offer to buy
common stock. The offer is made only by the Prospectus. The shares of common
stock offered in the Conversion are not accounts or deposits and are not
federally insured or guaranteed. The common stock has not been approved or
disapproved by the Securities and Exchange Commission, the Federal Deposit
Insurance Corporation, the Office of Thrift Supervision or any other government
agency.
<PAGE>
STOCKGRAM
[Optional]
Farnsworth Bancorp, Inc. [LOGO]
DEAR POTENTIAL INVESTOR:
TIME IS RUNNING OUT FOR YOU TO PURCHASE STOCK IN FARNSWORTH BANCORP, INC.'S
INITIAL STOCK OFFERING.
THIS IS A REMINDER THAT YOUR OPPORTUNITY TO PURCHASE STOCK IN OUR SUBSCRIPTION
AND COMMUNITY OFFERING EXPIRES AT 12:00 NOON, EASTERN TIME, ________, 1998.
YOU SHOULD HAVE RECENTLY RECEIVED A PROSPECTUS AND STOCK ORDER FORM. IF NOT,
PLEASE CALL OUR STOCK INFORMATION CENTER IMMEDIATELY.
A STOCK ORDER FORM AND POSTAGE-PAID REPLY ENVELOPE ARE ENCLOSED. YOUR STOCK
ORDER FORM AND PAYMENT MUST BE RECEIVED AT ANY OF OUR OFFICES BY 12:00 NOON,
EASTERN TIME, ON ________, 1998.
IF YOU HAVE ALREADY PLACED AN ORDER FOR FARNSWORTH BANCORP, INC. STOCK, PLEASE
DISREGARD THIS NOTICE.
ANY QUESTIONS YOU MAY HAVE CAN BE ANSWERED BY CALLING THE STOCK INFORMATION
CENTER AT (609) ___-____ FROM 9:00 A.M. TO 4:00 P.M., MONDAY THROUGH FRIDAY.
SINCERELY,
GARY N. PELEHATY
PRESIDENT AND CHIEF EXECUTIVE OFFICER
THIS LETTER IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY
COMMON STOCK. THE OFFER IS MADE ONLY BY THE PROSPECTUS. THE SHARES OF COMMON
STOCK OFFERED IN THE CONVERSION ARE NOT ACCOUNTS OR DEPOSITS AND ARE NOT
FEDERALLY INSURED OR GUARANTEED. THE COMMON STOCK HAS NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE OFFICE OF THRIFT SUPERVISION OR ANY OTHER GOVERNMENT
AGENCY.
<PAGE>
LOGO
PROXYGRAM
DEAR CUSTOMER:
TIME IS RUNNING OUT TO VOTE ON THE PLAN OF CONVERSION! YOUR VOTE IS IMPORTANT TO
US. A FAILURE TO VOTE WILL HAVE THE SAME EFFECT AS A VOTE AGAINST THE PLAN. THE
BOARD OF DIRECTORS URGES YOU TO VOTE FOR THE PLAN OF CONVERSION.
YOU SHOULD HAVE RECENTLY RECEIVED PROXY CARD(S) AND A PROXY STATEMENT DESCRIBING
PEOPLES SAVINGS BANK'S PLAN OF CONVERSION.
PLEASE VOTE AND SIGN THE ENCLOSED PROXY CARD(S) AND RETURN THEM PROMPTLY IN THE
ENCLOSED POSTAGE-PAID REPLY ENVELOPE OR DELIVER THEM TO EITHER PEOPLES SAVINGS
OFFICE PRIOR TO ____ A.M./P.M. ON ________, 1998.
VOTING ON THE PLAN DOES NOT OBLIGATE YOU TO PURCHASE STOCK IN THE FARNSWORTH
BANCORP, INC. STOCK OFFERING.
IF YOU RECENTLY MAILED THE PROXY CARD(S), PLEASE ACCEPT OUR THANKS AND DISREGARD
THIS REQUEST.
IF YOU HAVE ANY QUESTIONS, OR WOULD LIKE TO RECEIVE ANOTHER COPY OF THE PROXY
STATEMENT, PLEASE CALL OUR REPRESENTATIVES AT THE STOCK INFORMATION CENTER AT
(609) ___-____, FROM 9:00 A.M. THROUGH 4:00 P.M., MONDAY THROUGH FRIDAY.
SINCERELY,
GARY N. PELEHATY
PRESIDENT AND CHIEF EXECUTIVE OFFICER
THIS LETTER IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY
COMMON STOCK. THE OFFER IS MADE ONLY BY THE PROSPECTUS. THE SHARES OF COMMON
STOCK OFFERED IN THE CONVERSION ARE NOT ACCOUNTS OR DEPOSITS AND ARE NOT
FEDERALLY INSURED OR GUARANTEED. THE COMMON STOCK HAS NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE OFFICE OF THRIFT SUPERVISION OR ANY OTHER GOVERNMENT
AGENCY.
<PAGE>
STOCK ORDER ACKNOWLEDGMENT CARD
Name
Address
Dear Subscriber:
We have received your subscription for ____ shares of Farnsworth Bancorp, Inc.
common stock. Farnsworth Bancorp, Inc. is the holding company for Peoples
Savings Bank.
The Common Stock will be registered in the name(s) shown above. Please verify
the accuracy of your name and address. If this information is listed
incorrectly, or if you have any questions, please call our Stock Information
Center at (609) ___-____, from 9:00 a.m. to 4:00 p.m., Monday through Friday.
Please note that this acknowledgment does not represent the total number of
shares that you may receive. The actual purchase will be determined by the total
number of orders received. The allocation process is described in more detail in
the Prospectus.
Thank you for your interest and we will keep you informed regarding the progress
of the Conversion.
Sincerely,
Gary N. Pelehaty
President and Chief Executive Officer
THIS LETTER IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY
COMMON STOCK. THE OFFER IS MADE ONLY BY THE PROSPECTUS. THE SHARES OF COMMON
STOCK OFFERED IN THE CONVERSION ARE NOT ACCOUNTS OR DEPOSITS AND ARE NOT
FEDERALLY INSURED OR GUARANTEED. THE COMMON STOCK HAS NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE OFFICE OF THRIFT SUPERVISION OR ANY OTHER GOVERNMENT
AGENCY.
<PAGE>
STOCK CERTIFICATE MAILING LETTER
[Peoples Savings Letterhead]
_________, 1998
Dear Stockholder:
On behalf of the Board of Directors of Farnsworth Bancorp, Inc., I would like to
welcome you as a charter stockholder. Our customers' response to the stock
offering was very gratifying, and we appreciate your support and participation.
______ shares were sold at a price of $10.00 per share.
Your stock certificate is enclosed. If you have any questions concerning
certificate registration or transfer, please contact our stock transfer agent:
[Insert name, address and phone number of Transfer Agent]
If the original stock certificate must be forwarded for reissue, it is
recommended that you send it by registered mail. If your address has changed,
please notify the Transfer Agent immediately.
If you paid for your shares by check, you will soon receive a check under
separate cover representing interest at the rate of ____%. If you paid for your
shares by authorizing a withdrawal from a Peoples Savings Bank savings or
certificate account, that withdrawal has been made.
Sincerely,
Gary N. Pelehaty
President and Chief Executive Officer
<PAGE>
TOMBSTONE ADVERTISEMENT
[LOGO]
Farnsworth Bancorp, Inc.
Holding Company for Peoples Savings Bank
UP TO 477,250 SHARES
Common Stock*
$10.00 Per Share
(Subscription Price)
Shares may be purchased during the Subscription and Community Offering, without
payment of commission or fees.
This Offering expires at 12:00 noon, Eastern Time, on ________, 1998.
To receive a copy of the Prospectus, please call the Stock Information Center at
(609) ___-____, from 9:00 a.m. to 4:00 p.m., Monday through Friday.
* The total offering is subject to a possible increase to 548,838 shares of
common stock.
This notice is neither an offer to sell nor a solicitation of an offer to buy
common stock. The offer is made only by the Prospectus. The shares of common
stock offered in the Conversion are not accounts or deposits and are not
federally insured or guaranteed. The common stock has not been approved or
disapproved by the Securities and Exchange Commission, the Federal Deposit
Insurance Corporation, the Office of Thrift Supervision or any other government
agency.
<PAGE>
LOBBY POSTER
Farnsworth Bancorp, Inc.
(Holding Company for Peoples Savings Bank)
Up to 477,250 Shares
(subject to possible increase to 548,838 shares)
Common Stock
$10 Per Share
Purchase Price
We are conducting an offering of common stock.
If you have any questions about the Conversion of Peoples Savings Bank from
mutual to stock form, please visit the Stock Information Center located in the
main office.
This notice is neither an offer to sell nor a solicitation of an offer to buy
common stock. The offer is made only by the Prospectus. The shares of common
stock offered in the Conversion are not accounts or deposits and are not
federally insured or guaranteed. The common stock has not been approved or
disapproved by the Securities and Exchange Commission, the Federal Deposit
Insurance Corporation, the Office of Thrift Supervision or any other government
agency.
<PAGE>
PRESS RELEASE - APPROVAL OF SALE
CONTACT: Gary N. Pelehaty
President and Chief Executive Officer
TELEPHONE: (609) 298-0723
DATE: ______, 1998
FOR IMMEDIATE RELEASE
- --------------------------------------------------------------------------------
Bordentown, NJ. Peoples Savings Bank ("Peoples Savings") has received approval
from regulatory authorities to convert from a mutual to a stock savings bank. As
part of the Conversion, Farnsworth Bancorp, Inc., the recently organized holding
company for Peoples Savings, is offering up to 477,250 shares of common stock
(or up to 548,838 shares to reflect changes in market or financial conditions
following commencement of the Offering) at a subscription price of $10.00 per
share. Common Stock will be offered through a Subscription Offering to
qualifying depositors and other members of Peoples Savings along with the
employee stock ownership plan of Peoples Savings and, if any shares remain, to
members of the general public through a Community Offering.
The Subscription Offering, which is being managed by Ryan, Beck & Co., Inc. is
expected to conclude at 12:00 noon, Eastern Time, on _______, 1998.
Information including details of the offering and Peoples Savings' operations
are described in the Prospectus, which is available upon request by calling
Peoples Savings' Stock Information Center at (609) ___-____, from 9:00 a.m. -
4:00 p.m., Monday through Friday.
This release is neither an offer to sell nor a solicitation of an offer to buy
common stock. The offer is made only by the Prospectus. The shares of common
stock offered in the Conversion are not accounts or deposits and are not
federally insured or guaranteed. The common stock has not been approved or
disapproved by the Securities and Exchange Commission, the Federal Deposit
Insurance Corporation, the Office of Thrift Supervision or any other government
agency.
<PAGE>
PRESS RELEASE - OFFERING COMPLETED
CONTACT: Gary N. Pelehaty
President and Chief Executive Officer
TELEPHONE: (609) 298-0723
DATE: _______, 1998
FOR IMMEDIATE RELEASE
- --------------------------------------------------------------------------------
Bordentown, NJ. Gary N. Pelehaty, President and Chief Executive Officer of
Peoples Savings Bank. ("Peoples Savings"), announced today the completion of
Peoples Savings' conversion from a mutual institution to a capital stock
institution and the sale of all of its outstanding capital stock to Farnsworth
Bancorp, Inc., its holding company.
A total of _____ shares of common stock of Farnsworth Bancorp, Inc. were sold at
$10.00 per share in a Subscription Offering to customers of Peoples Savings and
the employee stock ownership plan of Peoples Savings. The stock will be traded
on the OTC Electronic Bulletin Board under the symbol "____".
Mr. Pelehaty expressed his appreciation to the more than ___ persons who became
stockholders of Farnsworth Bancorp, Inc. Mr. Pelehaty was pleased by the support
and confidence shown by the Savings Bank's customers. As a result of the
Conversion, the Savings Bank increased its capital base and is better positioned
to serve the needs of its customers and community.
Ryan, Beck & Co. Inc., served as investment banker and managed the Subscription
Offering. Malizia, Spidi, Sloane & Fisch, P.C. served as counsel for Farnsworth
Bancorp, Inc. and Peoples Savings Bank.
<PAGE>
PEOPLES SAVINGS BANK [LOGO]
QUESTIONS & ANSWERS
ABOUT THE CONVERSION AND STOCK OFFERING
Peoples Savings Bank ("Peoples Savings" or the "Savings Bank") is converting to
the stock form of ownership pursuant to a Plan of Conversion (the "Plan"). You
have the opportunity to become a stockholder in Farnsworth Bancorp, Inc., the
Savings Bank's recently organized holding company (the "Holding Company"). This
pamphlet answers frequently asked questions about the stock conversion and about
your opportunity to invest in the Holding Company.
Investment in the common stock involves certain risks. For a discussion of these
risks and other factors, investors are urged to read the accompanying
Prospectus.
GENERAL
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Q. What is meant by Conversion?
A. Conversion is a change in the legal form of the Savings Bank's
organization. Peoples Savings is presently a federally chartered mutual
(no stockholders) savings bank. After the Conversion, Peoples Savings
will be a federally-chartered capital stock savings bank and the stock
of its holding company, Farnsworth Bancorp, Inc., will be held by
stockholders who purchase stock in the Conversion or in the open market
following the Conversion.
Q. Why is Peoples Savings converting to the stock form of ownership?
A. Although the Peoples Savings exceeds all regulatory capital
requirements, the Savings Bank's business strategy includes raising
additional capital. The conversion of Peoples Savings and the related
sale of the Holding Company's common stock will:
o Allow customers and community members to become stockholders,
sharing in our organization's future;
o Provide additional funds for lending and investment
activities;
o Facilitate future access to the capital markets;
o Enhance the operating flexibility of our organization; and
o Enhance the ability of Peoples Savings to compete effectively
with other financial institutions.
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Q. What steps are involved in completing the Conversion?
A. o A Plan of Conversion was adopted by the Board of Directors of the
Savings Bank;
o The Office of Thrift Supervision approved the Plan of Conversion,
subject to approval of the Savings Bank's members (depositors and
certain borrowers);
o The Board of Directors is soliciting proxies from the Savings
Bank's members, requesting that they vote "FOR" the Plan of
Conversion;
o The Holding Company is conducting a Subscription Offering for
certain depositors and borrowers;
o At the conclusion of the Conversion, the Holding Company will
own all of the stock of Peoples Savings, and stockholders will
own Farnsworth Bancorp, Inc.'s common stock; and
o When the Plan is approved and the Offering is completed,
certificates for the common stock will be issued to Farnsworth
Bancorp's stockholders.
Q. What effect will the Conversion have on the Savings Bank's operations?
A. After the Conversion, Peoples Savings will continue to offer customers
its current range of financial services. The Savings Bank's principal
business of accepting deposits and making mortgage and other loans will
continue without interruption.
Q. Will there be any changes in management or personnel of the Savings Bank
as a result of the Conversion?
A. No. Directors, officers and employees will continue in their same
positions at the Savings Bank. Our day-to-day activities will not
change.
Q. Will the Conversion have any effect on my deposit accounts or loans with
Peoples Savings Bank?
A. No. The Conversion will not affect the balance, interest rate or
withdrawal rights of your savings or certificate accounts. Insurance of
deposit accounts by the FDIC will continue without change. The rights
and obligations of borrowers under their loan agreements will not be
affected.
Q. How will the proceeds raised from the sale of common stock be used?
A. The net proceeds from the sale of common stock will increase Peoples
Savings' capital base and will be used for general corporate purposes
including making future loans and investments. The net proceeds will
initially be placed in short-term investments.
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Q. What are the purchase priorities for the Subscription Offering and
Community Offering?
A. Non-transferable subscription rights to subscribe for the common stock
in a Subscription Offering have been granted, in descending order of
purchase priority to (i) depositors with aggregate deposits of $50.00 or
more as of December 31, 1996; (ii) the Savings Bank's tax-qualified
Employee Stock Ownership Plan; (iii) depositors with aggregate deposits
of $50.00 or more as of June 30, 1998; and (iv) depositors of the
Savings Bank as of ______, 1998, and borrowers of the Savings Bank with
loans outstanding as of December 2, 1996 which continued to be
outstanding as of _______, 1998.
Because Qualifying Deposits are utilized in allocating shares to
Eligible Account Holders and Supplemental Eligible Account Holders,
each such subscriber should be sure to list on the Stock Order Form all
the deposit accounts in which he or she had an ownership interest at
the applicable date, December 31, 1996, June 30, 1998 or ________,
1998.
Subject to the prior rights of holders of subscription rights, common
stock may be offered in a Community Offering to certain members of the
general public.
Q. Are the depositors and borrowers who are eligible to buy common stock
obligated to do so?
A. No. They will become stockholders only if they decide to purchase shares
of common stock
Q. As a depositor or borrower eligible to buy common stock in the
Subscription Offering, may I sell or assign my subscription rights?
A. No. Such transfer is prohibited by law.
Q. How was the offering range and the price per share determined?
A. The offering range is based on an independent appraisal of the pro forma
market value of the common stock performed by an appraisal firm
experienced in valuations of thrift institutions. The appraisal, dated
June 12, 1998, indicated that the aggregate pro forma market value of
the common stock ranged between $3.5 million and $5.5 million (with a
mid-point of $4.2 million). The offering range is between 352,750 and
548,838 shares. The Board of Directors determined to offer the shares at
$10.00 per share.
Q. Will the common stock I purchase be insured by the Federal Deposit
Insurance Corporation?
A. No. Common stock cannot be insured by the Federal Deposit Insurance
Corporation ("FDIC"). Your deposit accounts at Peoples Savings, however,
will continue to be insured by the FDIC.
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Q. Will dividends be paid?
A. Farnsworth Bancorp, Inc. does not expect to establish a cash dividend
policy during the first year after the Conversion. Future payment of
dividends is subject to the discretion of the Board of Directors, which
will consider the Savings Bank's and Holding Company's earnings,
regulatory requirements, business needs and other relevant factors.
Q. How will the common stock be traded?
A. It is anticipated that the common stock of the Holding Company will
receive approval for quotation on the OTC Electronic Bulletin Board.
However, there can be no assurance that an active and liquid market will
develop. Although under no obligation to do so, Ryan Beck & Co., Inc. has
informed Peoples Savings that it intends, upon the completion of the
Conversion, to make a market in the common stock by maintaining bid and
asked quotations.
VOTING
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YOUR VOTE IS IMPORTANT!
Details about the stock conversion of Peoples Savings Bank and the formation of
the Holding Company are provided in the Proxy Statement.
Q. Am I required to vote or buy stock?
A. No. Members are not required to vote, and voting does not obligate a
member to buy stock. Because your vote is important, however, management
urges that you take advantage of this opportunity to vote "FOR" the
Plan. Your proxy card is enclosed in the window of your envelope. Please
vote, sign and return the card(s) in the enclosed proxy return envelope.
The card(s) must be received by _______, 1998.
Q. Has Peoples Savings' Board of Directors adopted the Plan of Conversion?
A. Yes. The Plan of Conversion was unanimously adopted by the Board of
Directors of the Savings Bank.
Q. What vote is necessary to approve the Plan of Conversion?
A. The Conversion cannot be consummated without the approval of the Savings
Bank's members. The Plan of Conversion must be approved by a majority of
the total votes eligible to be cast. Not voting is the same as voting
against the Plan. Therefore, your vote is very important!
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Q. Why did I get several proxy cards?
A. If you have more than one deposit account or loan, you could receive
more than one proxy card, depending on the ownership structure of your
accounts. Please vote, sign and return all cards that you receive. Only
one signature is needed on proxy cards with more than one name listed.
Q. How many votes do I have?
A. Each account holder is entitled to one vote for each $100, or fraction
thereof, on deposit in such accounts. Each borrower member is entitled
to cast one vote in addition to the number of votes, if any, he or she
is entitled to cast as an accountholder. No member may cast more than
1,000 votes.
PURCHASING COMMON STOCK
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Q. How many shares are being offered?
A. The Holding Company is offering between 352,750 and 477,250 shares of
common stock. Under certain circumstances, the number of shares may
be increased to 548,838 shares.
Q. What is the price per share?
A. The subscription price is $10.00 per share.
Q. How do I order common stock during the Offering?
A. Complete and return the enclosed Stock Order Form, together with payment
or authorization for account withdrawal, as described above. You may use
the enclosed order return envelope. Orders must be received by Peoples
Savings by 12:00 noon, Eastern Time on ________, 1998.
Q. How do I pay for common stock?
A. Payment may be made by check, bank draft or money order or by
authorization for withdrawal (without early withdrawal penalty) from
passbook, statement savings or certificate of deposit accounts
maintained at Peoples Savings. Funds authorized for withdrawal will
remain in the account and will continue to earn interest at the
contractual rate, but will be unavailable to the depositor during the
Offering. Subscriptions made by check, bank draft or money order will
earn interest at Peoples Savings' passbook savings account rate until
the Conversion is completed.
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Q. How much common stock may I order?
A. The purchase limits in the Conversion are described in detail in the
section of the Prospectus entitled "The Conversion - Subscription Rights
and the Subscription Offering and Community Offering". The maximum
number of shares which any person or persons, or for any person,
associate or group of persons acting in concert, is 6,000 shares or
$60,000 in the Conversion. The minimum purchase is 25 shares or $250.
Q. As a depositor or mortgage borrower, will I pay a lower price for the
common stock than someone who is not a customer of the Savings Bank?
A. No. The price per share is the same for all subscribers in the Offering.
Q. Do I pay a commission?
A. No. No commission or fee will be charged for the purchase of shares
during the Offering.
Q. Are executive officers and directors of the Savings Bank planning to
purchase common stock?
A. Yes. Peoples Savings' executive officers and directors presently
expect to purchase an aggregate of approximately $38,800 of common
stock.
Q. What happens to my order if orders are received for more common stock
than is available?
A. This is referred to as an oversubscription and shares will be allocated
on a priority basis as described in the Prospectus. The priority order is
also described above. Any funds submitted by you to purchase stock will
be refunded you with interest should your order not be filled, or not
filled in full.
Q. I have an IRA account at Peoples Savings. Can I use this money to
purchase the common stock without incurring any tax consequences?
A. You will need to transfer your IRA relationship to a broker-dealer, who
will establish a self-directed IRA account for you. Peoples Savings will
not charge a penalty for early withdrawal, and there will be no IRS
penalty incurred as a result of purchasing the common stock by this
means. Please call the Stock Information Center at least two weeks prior
to the close of the Offering for a complete description of and
assistance with IRA procedures.
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Q. May shares be registered in someone else's name?
A. No. Common stock initially must be registered in the name(s) of the
purchaser(s) as described on the Stock Order Form. You may later
re-register the stock in other names.
Q. In the future, how may I purchase additional shares or sell shares?
A. You may purchase or sell shares through your stockbroker or discount
brokerage firm. The firm will charge a commission for trades.
Q. When will I receive my common stock certificate(s)?
A. Common stock certificates will be mailed by our transfer agent promptly
after the Conversion is completed. Please be aware that you may not be
able to sell shares purchased in the Offering until you receive your
stock certificate.
This brochure is neither an offer to sell nor a solicitation of an offer to buy
common stock. The offer is made only by the Prospectus. The shares of common
stock offered in the Conversion are not accounts or deposits and are not
federally insured or guaranteed. The common stock has not been approved or
disapproved by the Securities and Exchange Commission, the Federal Deposit
Insurance Corporation, the Office of Thrift Supervision or any other government
agency.
QUESTIONS?
Stock Information Center
Peoples Savings Bank
789 Farnsworth Avenue
Bordentown, NJ 08505
(609) ___ - ____
